Today
Equity futures are moving lower this morning as investors took profits in semiconductor stocks and monitor the escalation in the Middle East. Despite strong results and higher guidance from Taiwan Semiconductor, chip stocks weakened amid concerns that AI-related capital spending may be peaking, prompting a rotation toward other technology sectors such as software. In South Korea, the Kospi Index fell -6.4% after the Bank of Korea delivered its first interest rate hike since 2023 to help contain inflationary pressures stemming from the Iran war, causing SK Hynix to fall -11.5% and Samsung Electronics to drop -8.8%. This morning’s moves follow a strong day for equities, driven by softer producer inflation data, easing Treasury yields, and solid bank earnings, reinforcing optimism that inflation is cooling without derailing corporate profits. Investors remain focused on whether interest rates can stay stable or move lower.
Investors are also digesting the latest economic news for clues on the health of the U.S. economy. Up first was retail sales, which rose 0.2% in June, matching expectations but slowing from May’s revised 1% gain as lower gasoline prices reduced spending at service stations. Excluding gasoline stations, sales increased a stronger 0.7%, indicating consumers continued to spend in other areas. Sales excluding autos and gasoline rose 0.4%, while the closely watched control group advanced 0.5%, both in line with forecasts. The data points to steady underlying consumer demand even as the headline figure was restrained by lower energy prices. On the jobs front, initial jobless claims fell by 8,000 to 208,000 in the week ended July 11, coming in well below expectations of 217,000 and signaling continued resilience in the labour market. Continuing claims also declined to 1.81 mln, indicating fewer people remained on unemployment benefits than anticipated.
AI needs more power. The AI boom is proving easier to build than to power. PJM Interconnection, the largest U.S. electricity grid operator, failed for a third consecutive auction to secure enough generating capacity for the 2028 to 2029 delivery year, falling short by 6.8 GW, or the equivalent of about seven nuclear reactors. The shortage highlights how AI-driven data centre demand is outpacing new power supply. Capacity payments remained at a record $16.4 billion, with prices hitting the auction cap for a second straight time, which will mean higher electricity bills for U.S. consumers. Attention now turns to an emergency procurement process later this year that would require hyperscale data centre operators, rather than households and businesses, to shoulder more of the cost of adding new generation needed to support AI-driven electricity demand. The proposal is also intended to provide stronger incentives for utilities and developers to build new power capacity.
Investor sentiment is improving according to Bank of America’s July Global Fund Manager Survey, driven by optimism around global economic growth, continued AI-related spending, and expectations that the Fed will avoid raising interest rates this year. Fund managers reduced cash holdings to very low levels and a record 54% now expect a no landing economic scenario, while increasing overweight positions in U.S. equities. Semiconductor stocks remain the market’s most crowded trade, with most investors expecting hyperscalers to maintain AI capital spending despite growing concerns that an AI bubble has become the biggest tail risk facing markets. The survey also found that respondents lowered their year-end oil price forecast to $71 per barrel, despite ongoing geopolitical uncertainty.
More consumers are using Buy Now, Pay Later installment loans to cover everyday necessities. A recent survey found that 44% of Americans expect to buy now and pay later over the next six months, with a growing number relying on them to finance essentials like groceries, rent, medical bills, and utilities. This comes as consumers contend with persistent inflation and rising living costs which have strained household budgets. The trend is raising concerns about debt sustainability, as nearly half of BNPL users report making late payments and interest-bearing loans now account for a growing share of the market, with fees and financing costs potentially reaching levels comparable to payday loans. While industry groups argue these types of payments provide transparent and flexible payment options, consumer advocates warn it can trap financially stretched borrowers in a cycle of recurring debt when used to fund essential expenses.
Getting better. Canadian home sales rose 0.5% in June, marking a third consecutive monthly increase and suggesting the housing market could be stabilizing after a weak start to the year. Still, the Canadian Real Estate Association lowered its 2026 sales forecast, now expecting a 1.4% decline from 2025 due to earlier weakness, higher spring mortgage rates, and slower population growth in some regions. Market conditions tightened as new listings fell and the sales-to-new-listings ratio climbed above 50% for the first time this year. CREA expects activity to be slow throughout the summer but expects a stronger fall market as fixed mortgage rates ease and further BoC rate hikes become less likely. The latest data also shows that home prices were unchanged from May, though they remained 3.4% lower than last year.
Not your typical summer haze. Ever wonder what those air quality colour warnings actually mean? Ontarians received an unfortunate crash course yesterday morning, waking up to orange skies and the smell of a campfire, despite no campfire in sight. Wildfire smoke covered much of Ontario, even reaching New York, leaving cities under an “orange” air quality warning. Environment Canada issued a “very high risk” air quality alert, advising residents to limit outdoor activities after Toronto recorded the worst air quality in the world. The smoke disrupted transportation and public events and led Canadian National to suspend rail operations near Armstrong, Ontario, where wildfire activity intensified. Across Canada, more than 800 wildfires were burning, with over 100 out of control, while officials warned that warmer-than-normal temperatures could make severe wildfire seasons more common. We hope everyone affected stays safe as firefighters continue their extraordinary work.
Diversion:
Mine!
