Markets Briefing: Chip Rout Swamps the Oil Relief as Three Central Banks Line Up
Monday closed with the S&P 500 barely changed as artificial-intelligence anxiety offset a sharp decline in crude, and the overnight session resolved that stand-off decisively in favour of the anxiety. A global selloff in semiconductors deepened through Asian trade, driven by two separate triggers hitting the same crowded position: a report that a Chinese state-backed company has begun mass producing immersion deep ultraviolet lithography machines, and Nvidia's latest round of more than 750 billion dollars of infrastructure deals, which revived questions about how much artificial-intelligence demand is being funded in a circle (BBG). A Bloomberg gauge of Asian semiconductor shares fell as much as 7.5 per cent, the most since early March (BBG).
Asian cash equities took the full force of it. The Nikkei fell 4.20 per cent, the worst among the major benchmarks, and the CSI 300 lost 2.77 per cent, dragging MSCI's emerging-market gauge down 2.59 per cent due to its heavy regional technology weighting. South Korea was worse still, with the market forced into a trading halt as the memory names were sold, and the Kospi is now more than 30 per cent below its peak (BBG).
The composition carried a warning that the index level does not: Japanese chip-equipment makers fell hard while their mainland-listed competitors rose on the very same report (BBG). One strategist reads the move as carrying a whiff of capitulation, but notes a token-expenditure index tracking large-language-model usage is still ticking lower as firms turn cost-conscious, which undercuts the assumption that compute demand keeps compounding at the early pace (BBG). Australia was the one green shoot in the region, the ASX rising up 0.74 per cent.
Three central banks decide this week, and the market is not confident about any of them. The Federal Reserve announces on Wednesday with a 38 per cent chance of a quarter-point rise priced at that meeting, rising to a 71 per cent chance at the September meeting, odds that firmed overnight even as oil fell. The Bank of England on Thursday carries almost nothing for the day itself, a 4 per cent chance, with the argument deferred to a 53 per cent chance in September, and the Bank of Japan on Friday is priced at a 3 per cent chance. The Fed meeting is the genuinely open one: the chair has deliberately withheld guidance, and a former Fed official has warned that raising rates without indicating how far could leave investors pricing a series of increases the committee does not intend (WSJ). Citadel Securities has broken ranks with the consensus and expects a rise this week, arguing the market is underestimating the extent of the hawkish shift (BBG).
The Reserve Bank of Australia gave the clearest steer of the session. Governor Bullock said it remains unclear whether this year's increases are enough to return inflation to target and that the board would raise the cash rate further if needed, but also that the full effects of earlier tightening will take time to emerge, and in the closing minutes of the question session described financial conditions as a bit on the restrictive side (BBG). Money markets trimmed their bets after the speech and the question session (BBG): an August move carries a 22 per cent chance, while 22 basis points are priced cumulatively by the December meeting, close to a full quarter point. So the August odds came down without the case for a rise by year-end being disturbed. The Australian dollar eased 0.33 per cent in response.
Currency markets were otherwise subdued, which is notable in itself on a day when equities moved this much. The dollar index was little changed, the euro unchanged at 1.1367 and sterling was steady at 1.329. The yen was unchanged at 163.71 despite the Bank of Japan meeting on Friday, and Japan's finance minister said in the morning that Tokyo and Washington are aligned on taking action on the currency if needed. The Korean won firmed 0.12 per cent even as Korean equities fell sharply, a divergence consistent with domestic investors repatriating offshore holdings rather than any vote of confidence in the local market.
Government bonds gained modestly as the inflation scare receded. The US ten-year yield held at 4.62 per cent and the two-year at 4.30 per cent, leaving the curve little changed. Bond investors are hedging rather than positioning, unsure how to read a Fed that has stopped explaining itself (Reuters). Asian bonds were calm by comparison, with the Japanese ten-year yield at 2.79 per cent and the Australian ten-year at 4.96 per cent, little changed on the day.
Crude extended Monday's steep decline, with WTI off 0.69 per cent on the day. Iranian and Omani negotiators are working towards reopening the strait's middle passage, with Omani officials hoping to announce progress within days (BBG). Meanwhile, the passage is thought to contain sea mines laid by Iran and would need to be cleared before regular use. (BBG). However, one bank has begun flagging the opposite risk, that a deal before the US midterms could tip the market into surplus (BBG). Gold fell 0.75 per cent to $ 4,045.51 per ounce ahead of the decisions (WSJ), while wheat firmed as Black Sea attacks pushed prices to a two-year high (Nikkei).
Regarding the data releases overnight, UK shop price inflation fell to 0.9 per cent in July against expectations of 1.1 per cent and a 1.2 per cent prior, a six-month low, with food inflation down for a sixth consecutive month (BBG) — the softest possible backdrop two days before the Bank of England, and a direct contradiction of the argument that the energy shock is already reaching the shelves. New Zealand filled jobs rose just 0.1 per cent, with the prior revised down. The BoJ's underlying inflation gauge held at 2.7 per cent, comfortably above target and the last such reading its board sees before Friday.
Ahead today: the Conference Board's US consumer confidence reading and the advance goods trade balance, the last inputs before the Fed convenes, and results from Boeing, Coca-Cola, Visa and Barclays. Safran has already raised its full-year guidance on record margins in civil engine parts, a reminder that the earnings season is not only an artificial-intelligence story. You can read the full report here.
Time Stamp: 28 July 2026, 08:19 CET