Chip Selloff Extends to South Korea, Oil Declines: Markets Wrap

(Bloomberg) — A selloff in semiconductor stocks spread to South Korea, reviving concerns that the blistering rally in artificial intelligence shares this year may have gone too far, too fast. Brent fell to the lowest since before the start of the Middle East war.

South Korea’s Kospi — which contains many companies involved in AI infrastructure buildout — slumped almost 7%, before paring declines. Samsung Electronics Co. and SK Hynix Inc. both fell about 5%, while Kioxia Holdings Corp. tumbled 11% in Japan after a blistering rally that had sent the stock up more than 650% this year. MSCI’s gauge for Asia Pacific shares dropped 0.3%.

Meta Platforms Inc.’s reported plans to build a cloud infrastructure business that would sell access to AI computing power and models fueled concern the company may have overbuilt its capacity. Separately, Apple Inc. is in talks to buy chips from two Chinese semiconductor makers, according to people familiar with the matter, which would hurt South Korean manufacturers.

“Higher AI spending is no longer seen as an unconditional positive,” said Ha SeokKeun, chief investment officer at Eugene Asset Management in Seoul. Investors are “increasingly focused on return on investment and potential overcapacity risk.”

Some stability came as US equity-index futures erased earlier losses to turn positive. Contracts for the tech-heavy Nasdaq 100 Index rose 0.4%.

Brent fell as much as 1.3% to $70.67 a barrel, the lowest level since Feb. 27, as flows through the vital Strait of Hormuz climbed. Treasuries held their losses, while gold rose for a second day after Federal Reserve Chairman Kevin Warsh said price risks have come down in recent weeks.

Warsh repeated his determination to bring inflation back to the US central bank’s 2% target. Speaking at the European Central Bank’s annual forum in Sintra, Portugal, Warsh said inflation expectations had moderated over the past month. He also reiterated the Fed’s commitment to restoring price stability, reinforcing expectations policymakers are in no rush to raise interest rates.

While the selloff in semiconductor stocks continued to drive sentiment in the equities market, investors took some comfort from Warsh’s comments and other central bankers suggesting inflation risks have become more balanced. Attention now shifts to the US jobs report on Thursday for fresh signals on the policy outlook after Warsh’s remarks damped expectations of a July rate increase.

“At a minimum, his comments provided no fuel for speculation on a near-term July rate hike, and in our view suggest the new Fed chair – while keeping all options open meeting by meeting – does not currently see cause for an immediate hike,” said Krishna Guha at Evercore.

Meanwhile, US manufacturing expanded for a sixth month in June as the war-driven surge in input costs eased, adding to signs the US economy remains resilient. Printing, electrical equipment and textiles led gains, while paper products, furniture and wood products contracted.

“Overall, the report points to continued resilience in the manufacturing sector and supports our view that the US economy is reaccelerating, with growth remaining on track to reach approximately 2.4% this year,” said Eugenio Aleman, chief economist at Raymond James.

Elsewhere, US negotiators Steve Witkoff and Jared Kushner held positive discussions in Qatar and progress is being made on technical talks with Iran, according to a senior administration official, as the countries seek to turn an interim peace deal into a permanent end to the war.

Working groups have been formed by Tehran to discuss the implementation of the current agreement and negotiate a final peace deal, though no talks have taken place yet, the state-run Islamic Republic News Agency reported, citing Deputy Foreign Minister Kazem Gharibabadi.

“We are on the optimistic front on geopolitics,” said Mohit Kumar at Jefferies. “It is not that we feel that we will have a comprehensive deal. It’s likely to be more of a fudge. But as long as the Strait remains open and oil keeps flowing, market is likely to get de-sensitized around geopolitics.”

Corporate Highlights:

Meta Platforms Inc. is developing plans for a cloud infrastructure business that will sell access to AI computing power and models, setting up a new vector of competition with industry leaders like Amazon Web Services, Microsoft Azure and Google Cloud. Alphabet Inc.’s Google was ordered to pay almost $2 billion to Klarna Group Plc’s Pricerunner unit in a dispute over the search-engine giant’s abuse of power in the market for comparison shopping services. Some of the main moves in markets:

Stocks

S&P 500 futures rose 0.2% as of 10:48 a.m. Tokyo time Japan’s Topix rose 1% Australia’s S&P/ASX 200 was little changed Hong Kong’s Hang Seng rose 1.7% The Shanghai Composite fell 0.7% Euro Stoxx 50 futures rose 0.2% Currencies

The Bloomberg Dollar Spot Index was little changed The euro was little changed at $1.1385 The Japanese yen was little changed at 162.51 per dollar The offshore yuan was little changed at 6.7899 per dollar Cryptocurrencies

Bitcoin rose 0.2% to $60,218.53 Ether rose 0.3% to $1,621.52 Bonds

The yield on 10-year Treasuries was little changed at 4.48% Japan’s 10-year yield advanced two basis points to 2.725% Australia’s 10-year yield advanced two basis points to 4.81% Commodities

West Texas Intermediate crude fell 1.3% to $67.66 a barrel Spot gold rose 0.6% to $4,053.30 an ounce This story was produced with the assistance of Bloomberg Automation.

–With assistance from Sangmi Cha.

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