When a six-fold profit surge is not enough

00:00:00: Hi and welcome to SwissCodes!

00:00:02: Daily market talk is Wednesday, July.

00:00:05: US and European markets briefly welcomed easing Middle East tensions earlier this week.

00:00:11: before however fresh attacks were ignited the oil rally and pushed futures lower This morning.

00:00:17: investors are obviously willing to rotate out of the AI heavy waste right now And into more defensive corners off-the-market earnings or strong and they're supportive.

00:00:27: But on the other hand geopolitical tensions continue to be that dark cloud in the sky.

00:00:32: Speaking of earnings, record earnings at SK Heineck's fell short of loft expectations today accelerating the stock sale off while the next few days will bring more big technology earning starting from today after the bell likely accompanied by higher spending plans from these big technology companies that could trigger a further pushback against that spending.

00:01:00: Opinions are my own and this is not financial advice.

00:01:11: So, US and European markets took a breather yesterday on the back of two-day decline in oil prices thanks to the brief halt that we saw in their Middle East tensions.

00:01:21: The letter window for opportunity offered a view actually on underlying market dynamics filtering out geopolitical tension which was the rotation trade.

00:01:32: Investors indeed directed capital toward technology light indices.

00:01:36: The FTSE hundred outperformed most european indices despite falling oil price and close the session a few points below an all-time high level, while the Dow Jones Industrial Index in U.S.

00:01:47: app perform its USP's with one percent gain on index levels, while technology heavy Nasdaq hundred fell another one per cent.

00:01:56: The S&P five hundreds Eco weighted index on other hand advanced to fresh all time higher as market cat weighted version saw it own upside capped by pressure technology valuations into the big technology earnings due later today and in the coming days.

00:02:13: Now on the micro front, earning season is actually going well for most of the US and European companies looking inside Europe.

00:02:20: The European banks are following their U.S peers announcing strong second quarter results thanks to heightened trading a bit less strong and a bit more impressive than the U. S peers were sometimes waiting on their stock valuations.

00:02:34: but across the Atlantic nearly one third already reported their results and the earnings grew nearly thirty.

00:02:43: That's well above the twenty three percent earnings growth rate penciled in by analysts.

00:02:48: Obviously, there are sectors like airline companies for example that have been very heavily hit By advising soaring energy prices due to the Middle East tensions and the second quarter.

00:02:58: but overall The earning season is going quite Well surprisingly well indeed given the tensions that we had seen In the Second Quarter on the Soaring Energy Prices.

00:03:08: therefore somehow makes sense that a de-escalation Middle East tensions today that lead to a pullback in energy prices boosts appetite for risk assets around the globe.

00:03:19: But, The problem is that the calm and middle east never last long.

00:03:24: Indeed news this morning suggests US intercepted fresh Iranian attacks on its military bases and U.S.

00:03:31: crew jumps more than three-and-a half percent at the time I'm talking here.

00:03:39: Now, later today the US Federal Reserve will announce its second monetary policy decision under it's new governor Mr.

00:03:46: Kevin Warsh.

00:03:47: Activity on Fed funds futures now assesses no more than a thirty percent chance for a twenty-five basis point hike to day.

00:03:54: but because Mr.

00:03:55: Warsh abandons the forward guidance strategy of the Fed and refuses to guide the markets toward that rate decisions The options are and we'll be open at this week meeting and full future FIMC meetings.

00:04:10: Again, as I discussed earlier this week and in the last weeks, I don't believe that the Fed is in a rush to hide interest rates this week!

00:04:17: The latest inflation figures from the US were indeed soft enough waiting at least until the September's FIMC meeting, yet their accompanying segment will likely remain cloudy as cloudy.

00:04:30: As a situation in the Middle East is with a hockey shift as Kevin Walsh Is not happy with inflation and the US running above target for the past half decade regardless of the recent rise that we saw in energy prices.

00:04:44: so We know that a Fed rate hike it coming?

00:04:48: a partially price rate hike today, would definitely spoil the market mood and be politically interesting to watch as well.

00:04:55: While no change in the Fed's policy which is the base case scenario still with keep focus on geopolitical developments energy prices and earnings.

00:05:06: Speaking of earnings, SK Hynix revealed its second quarter earnings today and the announcement didn't go smoothly.

00:05:13: Say the least.

00:05:13: The company actually reported record revenue while operating profit surge more than sixfold from a year earlier driven by relentless demand for AI memory chips And great pricing capacity as well.

00:05:25: in this environment of chip scarcity Alas!

00:05:28: Earnings fell six percent short of analysts' lofty forecast and later came just few days after Chinese competition chips emerge, hinting at softer pricing power in the future.

00:06:04: Investors don't want to hear a word about it.

00:06:07: Another thing investors do not want is higher spending.

00:06:10: in this end SK high and X double down on aggressive investment plans, saying capital spending will remain elevated as an expense.

00:06:18: HBM and next generation memory production in the coming quarters too meet long term AI demands or long-term demand or not?

00:06:27: Investors are now happy so that sour recombinational software than expected earnings and hired unexpected spending plans pushed SK high next stock price off a cliff today.

00:06:37: The stock price was down by sixteen percent when I started talking, now it's downed around eight percent.

00:06:44: the volatility is there.

00:06:45: Samsung on the other hand which is due to report its own results tomorrow is down by ten percent.

00:06:50: before saying a word about how it did.

00:06:53: Volatility remains high.

00:06:54: The Korean Cosme Index was down way around seven percent this morning and actually slipped below past year uptrending base.

00:07:01: now It has two hundred day moving average also trading below the fifty percent Fibonacci support on last year and so rally.

00:07:09: It is however, approaching the oversold territory which means that to sell off could slow down in the coming weeks.

00:07:15: yet this memory chip bubble is now over And I actually don't see investors returning to memory chip stocks with the same appetite With the same enthusiasm That they did over the past years.

00:07:29: So it's time to catch up.

00:07:30: fresh wave of AI.

00:07:32: Where Is It?

00:07:32: Time will tell.

00:07:33: Now I'm sorry to say this but, This is my last day before my summer break so i won't be here to comment the upcoming big technology results Before my return on August ten.

00:07:43: But as we discussed long during this week and weeks before I expect earning season To be shaky and heated for the Big Technology companies.

00:07:52: Alphabet Last Week opened the dance by announcing more spending this year.

00:07:57: remember about two hundred billion US dollars given the rest of the big technology team no option but to follow.

00:08:04: Remember I was saying last week that The Big Technology is now in this spander's dilemma which forces them increase their spending plans on AI infrastructure to stay in race and stay ahead even if it means higher borrowing costs, build this AI infrastructure.

00:08:21: And lower margins.

00:08:22: now we see the AI spending aims to increase advertisement revenue at metal and cloud revenue at Microsoft and Amazon.

00:08:29: but given the muted reaction two eighty-two percent cloud growth at alphabet last quarter.

00:08:35: I am afraid that is will take a big big surprise on earnings from to reverse the bearish time.

00:08:41: It equals big technology.

00:08:42: due to this spanding.

00:08:44: And because I expect big technology companies to continue double down on their spending plans, I see investors further pushing back against these spending plants and pull the big technology valuations lower.

00:08:55: In this respect i will end my short week with a fun fact!

00:08:58: Apple- The only big technology company that missed AI turned among Magnificent Seven Companies & they actually got hammered for months due to lack of AI innovation Actually saw its market cap surge past NVIDIAs This Week.

00:09:13: Apple's market cap today is a touch below the five trillion US dollars mark, while NVIDIA's market cat fell to four point seventy seven trillion us dollars.

00:09:24: That is yet most clear example of the actual capital outflows from the big technologies, big spenders that so far benefited companies and AI supply chain like chip makers, memory chip makers ,the builders of their infrastructure.

00:09:38: but now that trade is also dying So what next?

00:09:42: Time will tell But I will leave it here with that question this week.

00:10:08: Threads, Telegram and Blue Sky for regular market updates.

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00:10:16: Please don't forget to hit the like button on these videos so let us know that you enjoy them And I will meet again on the tenth of August when i back from my summer holidays.

00:10:28: Until then good day

00:10:32: trading and stay safe.

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