By Jamie McGeever
ORLANDO, Florida, July 16 (Reuters) – A shakeout in U.S. semiconductor stocks tanked the tech-heavy Nasdaq on Thursday as AI jitters spread globally, while solid U.S. economic data helped lift the dollar and Treasury yields.
In my column today, I look at foreigners’ insatiable appetite for U.S. stocks, which suggests that faith in America’s AI story — the “U.S. exceptionalism” narrative — is, for now at least, alive and well.
If you have more time to read, here are a few articles I recommend to help you make sense of what happened in markets today.
1. TSMC to invest another $100 billion in U.S. as Q2 profit blows past forecasts
2. China’s Xi to outline AI diplomacy vision at key Shanghai forum
3. Americans are angry about data centers. Politicians are feeling the pressure
4. SpaceX selloff an ominous sign as lockup expiry looms
5. Fed flip-flops make case for less talk: Mike Dolan
Today’s Key Market Moves
• STOCKS: South Korea -7%, Japan -2.8%. Europe and UK little changed, Wall Street’s big three indices slide between 0.2% and 1.5%.
• SECTORS/SHARES: U.S. chip index -4%, comms services -3%; consumer staples +3%. Sandisk -12.5%, Seagate Technology -10%. Netflix -5% after the bell. Nike +4%.
• FX: Dollar +0.3%, sterling -0.5%, dollar/yen still hugging 40-year highs above 162.00.
• BONDS: U.S. yields up 3 bps at the short end, bull-flattening the curve.
• COMMODITIES/METALS: Oil -1%, U.S. natgas hits 2-month low $2.823/mmBtu, gold -2%, silver -4%.
Today’s Talking Points
* Seoul searching
Authorities in South Korea are desperately trying to clamp down on the volatility sweeping through the country’s stock market, with their latest move on Thursday targeting leveraged, derivative-based ETFs tied to major technology firms like Samsung and SK Hynix. Will it work?
Volatility in the KOSPI index has gone through the roof — 30-day realized vol is higher than any point on record apart from late 1998 around the LTCM crisis and Russian debt default — and foreign investors are selling at the fastest rate in 25 years. Hold on to your hats.
* Communication breakdown
In monetary policy, the signals central bankers send can often be as important as the actions they take. Sometimes more so. So new Fed Chair Kevin Warsh’s pledge to overhaul the Fed’s communications strategy, effectively towards a “less is more” approach, is bound to create some degree of uncertainty and unease for investors.
The Warsh Fed’s “reaction function” remains unclear. How will the Fed react to shifting economic indicators, what will precipitate that action, and what will that action be? Nobody knows yet. Meanwhile, it’s quiet period for the next two weeks ahead of the July 28-29 policy meeting. But will officials be so quiet after that?
* A delicate balancing act
A new Fed paper and U.S. capital flows data this week underscore just how pivotal AI is to the U.S. economy and markets. The Fed paper suggests AI-related imports could widen the current account deficit more than previously thought, while the latest “TIC” data shows foreign investors continue to pour huge amounts into U.S. equities as they chase the AI dream.
This is fine, until it’s not. Nervousness around the huge cost of the AI buildout is beginning to ripple through Wall Street, with the “SOX” chip index down 20% in the past month. If this continues, or if foreign investors get twitchy, Houston, we could have a problem.
What could move markets tomorrow?
• Developments in the Middle East
• Global sentiment toward AI, semiconductor stocks
• German Chancellor Merz and French President Macron speak to reporters
• U.S. University of Michigan consumer sentiment, inflation expectations (July, prelim)
• U.S. industrial production (June)
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Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.
(Reporting by Jamie McGeever; Editing by Nia Williams)
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