Tech Rally in Focus Today

MACRO FRAME

The latest military exchanges between the US and Iran re-inflate the geopolitical risk premium in energy and add a hawkish skew to the macro backdrop.

STOCK INDEX FUTURES

Equity index futures were mostly lower overnight, with the Dow standing out in the green. Tech will be in focus today with SK Hynix’s ADR debut is essentially a live test of whether the market still believes in the durability of the AI‑memory trade after a sharp run and recent wobble. SK Hynix is listing ADRs in the US following a roughly $26.5 billion share sale, the second‑largest US equity offering after SpaceX’s record IPO last month. The deal was reportedly more than seven times oversubscribed, underscoring still‑strong institutional demand for AI‑linked memory exposure. Semiconductors have been seen as a very crowded trade, bankers and issuers meeting demand where valuations are rich and investor appetite for AI exposure remains elevated. Oversupply fears are inherent to memory/semis; investors will weigh the last year’s rally against recent volatility and the risk of capex discipline emerging. Global cloud and AI infrastructure capex is projected to approach about $1.5 trillion by 2027, implying year‑over‑year growth on the order of 40–50%.

On the geopolitical front, crude has eased slightly from its spike, the dollar and 10‑year yields are both a touch lower, and the prevailing view on Wall Street remains that both sides still have incentives to work toward a longer‑term truce. Equity traders are increasingly treating Gulf headlines as noise around an underlying negotiation process, rather than a clear break toward all‑out war.

Watch point: Equity volatility is being driven by increasingly concentrated bets in tech and semis, and that argues for a deliberate shift toward industrials and broader, real‑economy exposure.

CURRENCIES

US DOLLAR: The USD index is little changed at 100.85. Traders have largely seemed to brush off the recent developments in the Middle East which has capped recent dollar upside. However, the overhang of geopolitical risk still remains present and should not be discounted. With no new data on the calendar today, the dollar is likely to stay rangebound, absent any geopolitical developments, while the medium-term bias for the dollar is higher given Fed policy expectations and interest rate differentials that remain favorable to the dollar. Wednesday’s rather hawkish Fed minutes and oil driven inflation worries remain supportive; policymakers are explicitly keeping the door open to a hike this year, though the committee is divided on timing. Markets are pricing roughly 33 bps of Fed tightening priced by December. The next catalyst for a breakout move in the dollar will be upcoming inflation data.

Watch point: Recent data has reinforced expectations that Fed policy will move higher before year-end. For now, markets will look to inflation signals for guidance on potential rate-hike timing.

EURO: The euro is little changed at $1.1426. Inflation data for Germany (2.4% YoY) and France (1.8% YoY) showed that inflation continued to slow from May in June, leading front-end bond yields to slip, though Germany’s two-year yield remains up around 10bps on the week. The move upwards in yields over the week is reflective of expectations that the European Central Bank will hike rates one more time before the end of the year; traders are pricing in around 33bps of tightening by December and see 40bps of tightening by April of 2027. The ECB’s account of its June noted that “headline inflation was set to rise further over the summer and remain well above target into the first half of 2027, despite almost three 25bp interest rate hikes being embedded in the projections.” Upside in the euro will likely depend on upcoming inflation data from the US. A shift to more hawkish Fed expectations has resulted in limited upside for the euro, while most currencies have remained rangebound this week amid the escalation in fighting between the US and Iran. The current environment and previous policy response from the bank, a hawkish bias is likely to persist until policymakers gain a better understanding of the second-round effects of inflation, which may not come until later in the year. Traders continue to await further developments out of the Gulf, though moves in the currency market have appeared much more benign than the action in the Gulf would suggest.

Watch point: A peace deal, restoration of oil flows through the Strait, and easing services inflation are likely to push back tightening expectations, though policy expectations are still biased upwards.

BRITISH POUND: Sterling is 0.10% higher at $1.3420. Since late June, the sterling has moved upwards from a local bottom of $1.3165; the move coincides with Starmer’s decision to resign as PM, and further clarity that Andy Burnham has secured backing from most Labour MPs to replace Starmer. Also supportive of the currency is the IMF’s upgrade of its UK growth forecast to about 1%, which would put it at the third-fasted growing G7 economy. With no key UK data today, GBP is likely to take its cue from broader dollar moves, oil and Gulf headlines rather than domestic releases.  Data from BNY shows that domestic GBP purchases remain consistent, helped by positive real rates, while international flows are more cautious, constrained by concerns about UK growth and politics. UK money markets now price roughly a 62% chance of just one BoE hike this year.

JAPANESE YEN: The yen gained 0.33% to 161.85 yen per dollar. Japanese assets got a lift after Finance Minister Katayama said the government wants the GPIF and other pension funds to ‘substantially’ increase investments in domestic financial assets. USD/JPY briefly strengthened and 10‑year JGB yields saw their largest daily decline in over a year as markets priced the possibility that a portion of GPIF’s ¥294tn portfolio could be steered back toward yen‑denominated bonds and local risk assets. While governance constraints mean any shift would need consensus across ministries and cannot be dictated by the MoF, the comments highlight Tokyo’s urgency in finding tools to stabilize a weak yen and jittery JGB market amid expansionary fiscal policy and war‑related energy shocks.

For the yen, bearish pressure in expected to continue in the near-term. Investors are now awaiting official intervention data later this month to determine whether the government was behind the yen’s sharp but short-lived rally on July 2. Elsewhere, Japan’s government revised its draft of the annual policy agenda, calling for appropriate monetary policy that supports stable price growth, more or less pressuring the BoJ to keep rates low. The market sees a total of 22 bps of tightening by year-end, with a move expected to come in January of 2027.

Watch point: With the yen sustaining a break above the 160 level, intervention from the government appears to be the greatest near-term risk against further depreciation.

AUSTRALIAN DOLLAR: The Aussie is 0.10% higher to $0.6947. The main story for the AUD is that traders largely believe the Reserve Bank of Australia is done raising rates this year. However, minutes of the RBA’s June policy meeting showed the board still saw upside risks for inflation and stood ready to raise rates again if needed, having already hiked three times this year. At the same time, members at the RBA were concerned about the risk of a downturn in the housing market, though the RBA’s chief economist has noted there were few signs of a market slowdown in the domestic economy. With markets awaiting further data on the economy, the Aussie is likely to remain subject to geopolitical developments, mainly regarding moves in oil. As for RBA policy, the path forward appears favorable to a halt on policy action for the remainder of the year. Markets imply a 43% chance the RBA will hike for a fourth time this year.

Watch point: While a durable end to the war would alleviate downside risks to growth and moderate inflation pressures, ongoing pass-through into broader prices is likely to be in focus in the RBA’s policy minutes.

TREASURY FUTURES

Yields moved edged higher across the curve in a flattening move, following moves in oil. Despite the recent escalation in fighting between the US and Iran, there have been reports that the two countries will continue peace negotiations. Still, the geopolitical overhand remains present in markets and should not be discounted. New York Fed President Williams said among factors driving inflation, he is most focused on demand by AI. Separately, Fed Chair Warsh announced the leadership of five task forces to review the Fed’s approach to policymaking. William’s comments highlight a concern that AI demand and spending have a more structural effect on inflation in the US, which will likely reinforce a higher for longer rate backdrop as global cloud and AI infrastructure capex is projected to approach about $1.5 trillion by 2027, making it harder to tame price pressures. Without any new data, moves in the bonds are likely to remain subject to the news flow today.

The Fed’s June minutes showed that inflation remained the dominant concern at the meeting. Notably, policymakers also see price pressures becoming increasingly broad-based across goods and services. The labor market was assessed as balanced and stable, leaving it largely a non-factor in the inflation debate. Ultimately, the minutes leave the impression of a committee on hold but tilting hawkish, with the next move dependent on incoming PCE prints. Markets are priced for a move higher in December and see a total of 33 bps of tightening by year-end.

Watch point: The Warsh-led Fed held on rates and signaled broad institutional change. Mainly, markets should expect fewer words from the Fed and less policy signaling, raising near-term rate volatility with incoming data.

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