Today
The week is beginning on a cautious note as AI-related stocks come under pressure, and geopolitical tensions in the Middle East continue to simmer. After a strong U.S. debut of its ADR on Friday, with shares rising 13% on the first day of trading, chipmaker SK Hynix tumbled -17% in Seoul overnight, its steepest one-day decline on record. A decline in Samsung Electronics added to the weakness, sending South Korea’s Kospi down -9% and triggering a 20-minute trading halt. With no obvious catalyst, the decline appears to reflect a combination of fragile investor sentiment and portfolio repositioning following an extended AI-driven rally. The weakness has carried into North American markets, with U.S. futures led lower by the Nasdaq. TSX futures are also lower, though relatively resilient as higher oil prices provide some support. Geopolitical risks are also in focus. Tensions between the U.S. and Iran escalated over the weekend after the U.S. launched another round of strikes in response to Iranian attacks on commercial shipping, prompting retaliatory missile and drone strikes by Iran against U.S. allies in the Middle East. The renewed hostilities have produced conflicting claims over the status of the Strait of Hormuz, with Iran declaring it closed while the U.S. maintains that shipping continues to pass through. Maritime traffic has nevertheless slowed, raising concerns about global energy supplies and commercial shipping. While physical damage from the latest attacks appears limited, the uncertainty has increased the risk of a more prolonged disruption to oil markets.
It’s the start of Q2 earnings season in the U.S., with U.S. banks JPMorgan Chase, Bank of America, Goldman Sachs, Wells Fargo and Citigroup leading a busy reporting calendar that will test whether strong corporate earnings can continue to justify market valuations. The combination of earnings results and inflation readings will be critical in shaping expectations for future interest-rate decisions, especially after Kevin Warsh emphasized a data-dependent approach to monetary policy. Later in the week, reports from Taiwan Semiconductor, Netflix, Johnson & Johnson and UnitedHealth, alongside retail sales, industrial production and consumer sentiment data, will provide additional insight into the strength of the U.S. economy and the outlook for AI-driven earnings growth.
Investors this week will also closely watch as Fed Chair Kevin Warsh makes his first appearances before Congress alongside the release of key U.S. inflation data that could shape expectations for interest rates. Economists expect June consumer inflation to ease, while producer prices may continue to reflect lingering cost pressures from higher energy prices tied to the Iran war. Markets currently see little chance of a July rate hike, with analysts believing both stronger-than-expected inflation and a more hawkish tone from Warsh would be needed to alter that outlook. Closer to home, the Bank of Canada is widely expected to leave interest rates unchanged. Investors will also monitor China’s second-quarter GDP, a potential rate hike in South Korea, U.K. economic data, and central bank commentary across Europe for further insight into the global economic outlook.
Emerging market equities saw significant foreign investor outflows in June, led by selling in South Korea and Taiwan, as investors rotated away from tech-focused markets. Foreign investors withdrew a net $46.1 billion from emerging market equities, including record outflows of $30.5 bln from South Korea and $18.3 billion from Taiwan, while China’s equity market also saw a reversal to net outflows. Despite the weakness in equities, EM debt remained strong, attracting $28.3 bln in inflows as investors favoured fixed income. The divergence reflects growing caution over higher global interest rates, uncertainty surrounding China’s outlook, and concerns that elevated valuations and earnings expectations in tech sectors may become harder to justify.
The U.S. dollar has remains supported by resilient economic growth, elevated real interest rates, and renewed geopolitical tensions in the Middle East, the same factors that have weighed on U.S. Treasury prices. Investors continue to favour the greenback as expectations for additional Fed rate hikes keep real yields near multi-year highs, making dollar-denominated assets relatively attractive. At the same time, investors remain cautious on longer-duration U.S. bonds, preferring overseas fixed income markets where they see fewer interest rate risks. Markets will closely watch this week’s U.S. inflation data and Fed Chair Kevin Warsh’s congressional testimony for further clues on the path of monetary policy and the outlook for both the U.S. dollar and bond markets.
The cost of crossing. Canada and the U.S. have finally reached an agreement to open the Gordie Howe International Bridge connecting Windsor, Ontario, and Detroit, Michigan, on July 27 after it was agreed that Canada will direct half of the bridge’s net operating profits, after operating expenses, to a U.S.-controlled regional economic development fund for 15 years. The new crossing will provide an alternative to the Ambassador Bridge, easing congestion along one of North America’s busiest trade corridors, where roughly a quarter of Canada-U.S. trade crosses the border. The original ownership agreement remains unchanged, with Canada and Michigan still set to split toll revenues equally once Canada’s construction costs are recovered. The bridge’s opening had been delayed for several reasons including the U.S. administration’s demands for a larger share of the project’s economic benefits, with Trump calling the revised arrangement “a much better deal for America.”
Just when I thought I was out… they pull me back in! The push by the U.S. to rebuild its rare-earth supply chain is running into an obstacle, a shortage of people with the expertise to process the critical minerals. Decades of outsourcing the industry to China have left experienced American chemical engineers and metallurgists so scarce that companies are recruiting specialists in their 80s, while aggressively poaching talent from rivals. The U.S. produces only about one-fifteenth as many mining graduates as China, has roughly a dozen accredited mining schools, and faces the retirement of more than half its mining workforce by 2029. Government agencies, universities, and companies are trying to rebuild the talent pipeline, but lower pay and uncertain profitability make rare earths less attractive than industries such as oil and gas. The skills gap means that even with billions of dollars in government support and greater access to raw materials, reducing the U.S.’s dependence on China could take much longer than thought. Turns out the rarest resource in the rare earth industry isn’t the minerals.
Diversion:
Almost…
