China brings a new piece to the chip puzzle

00:00:00: Hi and welcome to Swisscodes, daily market talk.

00:00:04: It's Monday the twenty-seventh of July.

00:00:05: The week starts with cautious optimism as oil prices retreat this morning after an unexpected decon weekend in the Middle East which is supporting bonds & equities today.

00:00:16: Attention now turns to Federal Reserve Bank Of England & Bank Of Japan meetings This Week With investors around the world looking for clues on their next policy Moose Amid the persistent inflation risk.

00:00:29: China's membership champion, CXMT has just burst onto the global stage today with a blockbuster IPO in Shanghai.

00:00:38: And it came as new threat to South Korea's hottest memory chip makers like SK Hynex and Samsung.

00:00:43: while big technology earnings announcement will continue full speed this week with investors focusing less on profits and more on their AI spending there free cash flow and valuation risk.

00:00:54: so we'll talk about all that.

00:00:58: Keep in mind that opinions are my own and this is not financial advice.

00:01:11: A percent retreat yet hasn't raised a small part of this pullback given that the traffic across the Strait of Hormiz remains near a standstill and Yemeni Healthies reportedly targeted Saudi Aramco's facilities.

00:01:39: So, The geopolitical situation remains very much unknown and risks are tilted to the upside for oil prices but the calmer we can on the pull back across energy prices this month.

00:01:51: they do support bond appetite in early hours trading week.

00:01:56: in this context, the Japanese ten-year yield for example returns below the two point eighty percent level while U.S.

00:02:03: two year yields that best reflects federal reserve rate expectations is down five basis points.

00:02:10: Now, it's going to be a busy week for central banks.

00:02:12: The Fed will meet this week and is expected to maintain its rates unchanged.

00:02:17: Activity on funds features assesses around two-thirds chance.

00:02:21: that scenario of no change this week.

00:02:24: but because the Federal Reserve is now changing his communication and forward guidance strategy under new Chair Kevin Walsh who doesn't want this kind come as a big surprise.

00:02:41: The fact that the latest inflation figures from U.S.

00:02:44: came in softer than expected could somehow encourage the Fed to kick that can down to September, but the fact that energy prices have been rising again with no easy and short-term resolution in the Middle East nor Ukraine suggests Federal Reserve will be delivering that rate hike sooner rather then later.

00:03:05: I still think that September is a better time for a rate action because the summer months are generally thinner in terms of liquidity and latter tends to amplify the market reaction.

00:03:17: But whatever the Fed does, their accompanying statement this week will likely remain cautious – and cautiously hawkish hint at the possibility data.

00:03:32: That means that we will just keep watching oil prices.

00:03:34: then two other central banks will decide this week, the Bank of England and the Bank Of Japan.

00:03:39: both are expected to keep their interest rates unchanged this week as well but both will likely keep a hawkish bias.

00:03:46: in the face of mounting inflationary pressures with rising energy prices The bank of japan especially should make sure its decision is to stand still This week wouldn't further hammer the Japanese yen trading well past previous pain threshold of the Japanese authorities right now say above the one hundred and sixty level against US dollar.

00:04:07: Last week, the pair even tested the one-hundred and sixty four level to the upside as the U.S.

00:04:12: dollar gain broadly on re escalation off the Middle East tensions and rising oil prices.

00:04:17: Now, Japanese know that throwing money at a problem isn't help.

00:04:20: so it will be upto The Bank Of Japan fix the mismatch between the Japanese policy rate which today stands below one percent while National CPI in Japan rose in the latest reading.

00:04:32: So, The Bank of Japan's decision and policy outlook is going to be very important.

00:04:39: bleeding if that decision helps stopping that bleeding.

00:04:43: Over in the UK, the political developments add another layer of complexity to the Bank Of England's decision.

00:04:49: There too latest inflation figures came and softer than expected by analysts.

00:04:54: soft enough indeed to buy the bank of england sometime before announcing a rate hike.

00:04:58: but But The market today fully prices an face point hikes within a year time.

00:05:11: But what's interesting is that even that hawkish outlook doesn't make Stirling more appealing to FX traders, the dull growth outlook of Britain indeed counterweighs potentially favorable rate differential because other major central banks including the Fed and European Central Bank are also expected in their home countries, or at least make sure that the inflation doesn't get worse.

00:05:43: And based on growth prospects, the Fed's got the strongest handful tightening its policy and letter should continue to support the US dollar against both euro, sterling ,and maybe also the Japanese yen as well.

00:05:54: Now on equity from.

00:05:55: investors are reacting quite positively too The pullback we see oil prices this Monday morning.

00:06:02: U.S & European futures are pointing At a positive start New week, while the Japanese Nikkei X is small point seventy two percent gain.

00:06:11: At that time I'm talking here this morning.

00:06:14: but look at Korean Cosby Index which is trading quite flat today pressured lower by a big big IPO in Shanghai.

00:06:22: That's Chinese memory chip maker called CXMT.

00:06:25: so Changshaeng Memory Technologies just made its market debut in Shanghai stock exchange Today and one of biggest IPOs of China.

00:06:33: And it's so.

00:06:34: price rallied more than five hundred percent in the first day of trading, more than five-hundred percent guys.

00:06:42: I might have never heard about this company before but it has quite become China's national memory champion and world's fourth largest DRAM maker!

00:06:53: This company was founded less then a decade ago But is growing at breathtaking Chinese scale speed benefiting from booming AI demand but also Beijing's push for SMAI Conductor Self-Sufficiency For China.

00:07:09: So this company now controls around eight to ten percent of the global D-Round market and some analysts out there see that percentage rising toward a high T's by two thousand twenty eight.

00:07:22: ad is now aggressively expanding production, so take on Samsung SK Hynex and Micron three off the hottest stocks over past year because CXMT's rapid expansion could eventually add Pricing pressure on these companies, which have been raising their membership prices like there is no tomorrow.

00:07:41: Remember in some cases we are talking about high triple digit percentage price increases over the past months and years.

00:07:49: And well beyond that pricing story The CXMT Is just another reminder That China is quietly or less quietly building its own AI supply chain from chips to models, reducing its dependence on Western technology while also becoming an increasingly serious competitor for the incumbents.

00:08:08: Could the latter help Hansang amass more capital flows?

00:08:12: That story to be followed!

00:08:13: The Hansang today remains very cheap compared with the western peers.

00:08:17: Now coming back to the west...the news of CXMT's incredible market debut doesn't really bother Nasdaq bulls this morning but we are heading into a busy week in terms of earnings announcements here and nothing is Sure.

00:08:30: Four big technology companies, Microsoft, Amazon, Meta and Apple will reveal how they perform in the second quarter of this year but they would also update their spending plans!

00:08:39: Remember investors are growing increasingly uncomfortable and unhappy with the hyperscaler's incredible AI spending plans as their free cashflow evaporates at same time forcing these companies to seek the additional financing through stock and bond sales in a macroeconomic environment of rising interest rate expectations, which makes this barring cost higher.

00:09:03: Remember?

00:09:04: The most notable point from Alphabet's announcement last week was not his eighty-two percent growth on its cloud unit but it is fact that its free cash flow turned negative than second quarter of this year And the market just reacted to that reality.

00:09:17: So the real market mover in these big technology earnings This week will be one, how much the companies expect to spend in the coming quarters.

00:09:25: Two, How much money they are left with and their hands that emit this heavy AI investment?

00:09:30: And three, how bad investors react to news!

00:09:34: Higher spending could eventually give some more fuel but will likely increase pressure on big technology valuations as these companies go from an important structural change today.

00:09:47: They used to be capital-like businesses with ample free cash flow in hand, Today they're turning into increasing the leverage capital heavy beer mods and that makes a difference for their valuations by adding leverage to their balance sheets and making them much more vulnerable to interest rate changes than they have been in the past.

00:10:04: So we'll be watching all of this week.

00:10:06: But This is All For This.

00:10:07: Monday.

00:10:08: I'm Ipeco And thank you for joining me and Thank You For All Your Beautiful And Supportive Comments.

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00:10:44: So I will meet again tomorrow and until then, good day trading!