Daily Market Outlook - Wednesday, July 29

Markets are dealing with a nasty combination of AI disappointment, Middle East escalation and central-bank uncertainty. The sharpest stress is in South Korea, where chip stocks are being punished as investors question whether AI capex can convert into earnings quickly enough. Oil is higher after renewed US-Iran conflict headlines, while the Fed’s new communication regime under Warsh has left markets unusually unsure going into today’s FOMC decision. The result is a risk tape with very little emotional support and even less policy hand-holding.

Asian equities extended their selloff for a second day as investors continued to rotate away from chipmakers. The MSCI Asia Pacific Index fell 1.5%, reaching its lowest level since mid-April, with South Korea again the epicentre of the damage. The Kospi fell as much as 9% after Tuesday’s 11% drop, putting the index on course for a potentially record two-day decline. Even after a modest recovery from the lows, the tech-heavy index is now around 42% below its June peak, which makes this far more than a routine pullback. The single-stock moves were brutal. SK Hynix fell as much as 20% after disappointing earnings, while Samsung dropped as much as 14% ahead of its own results. The message is clear: investors are no longer rewarding AI exposure by default. They want proof of earnings conversion, margin resilience and demand durability. A major US semiconductor index fell another 4.5% on Tuesday, leaving the Nasdaq 100 close to technical correction territory. Nasdaq futures were down 0.7%, putting the index on course for a sixth straight decline, while European markets are set for a sluggish open.The rotation away from tech is becoming more visible. Over the past month, Asian leadership has shifted toward consumer discretionary, financials and energy, while chipmakers have moved from market darlings to volatility transmitters. The AI story has not disappeared, but the market’s tolerance for disappointment has collapsed. The FT report that the BoE is reviewing UK financial-sector exposure to Asian equities, amid concerns about concentrated bets on a few AI-linked companies, adds a financial-stability dimension to what had previously been treated mainly as an equity valuation issue.

Middle East headlines are again weighing on sentiment. Iran rejected the Omani proposal to share the Strait of Hormuz, launched missiles at a US base in Jordan that were intercepted, and Reuters reported claims of US and Saudi strikes on Iranian militants in Iraq. Brent rose nearly 4%, trading above $87/bbl. That is higher than yesterday’s lows, though still close to late Tuesday afternoon London levels. In market terms, the move is less about a fresh oil shock from nowhere and more about the removal of any immediate diplomatic relief premium. US Treasury yields are also off yesterday’s lows, though the rates move has been measured. The direction is still consistent with renewed energy pressure. Oil at $87/bbl is not as alarming as last week’s move toward triple digits, but it is high enough to complicate the disinflation narrative if the conflict escalates again. The US dollar weakened despite the risk-off tone, suggesting markets are not treating this as a clean haven episode. Instead, investors are balancing geopolitical risk against Fed uncertainty, tech positioning stress and the fading usefulness of traditional forward guidance.

Australia provided one clear dovish counterpoint. June CPI missed expectations at -0.1% m/m versus consensus of +0.2%, while annual inflation came in at 3.8% y/y, a 0.2ppt undershoot. RBA pricing moved sharply: the roughly 8bps of implied tightening for August at the end of last week has fallen to less than 1bp, while year-end tightening expectations dropped from 22bps yesterday to around 13bps. Energy risk is global, but local inflation data still matter, and today’s CPI print removes most of the near-term urgency around an August RBA hike.

In the UK, last week’s sequence of cost-of-living announcements has given way to apparent revenue-raising trial balloons. Today’s headline is the possibility of an additional 1.8ppt income tax levy to fund social care. For now, gilts are likely to remain more sensitive to energy-market developments than speculative Budget headlines, but the direction of travel matters. Last week brought electricity VAT relief, bus fare support and hospitality rates measures; this week is already shifting toward how the government might pay for a broader social-care and public-services agenda. The Autumn Budget, with the date still to be confirmed, is likely to become a more important gilt-market event as it approaches. Investors will want clarity on how much new spending is structural rather than temporary, how much is genuinely funded versus fiscally engineered, and how much additional gilt supply may be required even if headline fiscal-rule metrics are protected. The concern is not that any single measure breaks the fiscal framework. It is that a sequence of small, loosely detailed commitments gradually reduces market confidence in the framework’s transparency.

Today’s FOMC decision is unusually uncertain. The central case remains no hike, but the market is no longer treating that as a near-certainty. What would previously have seemed like an extremely contrarian call — a Fed hike today — now has a respectable argument behind it. That is a direct consequence of Chair Warsh’s communication strategy. Under Powell, the Fed would probably have used a late pre-quiet-period speech or guided press commentary to avoid entering the meeting with a roughly one-third/two-thirds hold-versus-hike split in expectations. Under Warsh, the lack of direction is deliberate.This changes the market function of Fed communication. Instead of smoothing expectations, the Fed is allowing uncertainty to do some tightening work. When investors are unsure whether the Committee will hold or hike, risk premia rise, financial conditions tighten at the margin, and the market does part of the Fed’s job. The case for holding is still strong: June inflation was softer, the Fed has not prepared markets for a hike, and moving today could create unnecessary volatility during a period of geopolitical stress and tech-sector fragility. But the case for hiking is not frivolous. Oil has rebounded, tariff risk remains an inflationary headwind, financial conditions are not especially tight, and demand has shown resilience. Warsh may also want to teach markets early that the old reliance on carefully choreographed guidance is over. His “family fight” approach to FOMC meetings means investors should not expect the Chair to pre-negotiate the outcome in public. In that sense, the best argument for a hike may be institutional rather than purely economic: markets may be about to learn that uncertainty is now part of the reaction function.

The Bank of England and Bank of Japan follow later this week. The BoE looks more likely to hold, helped by three consecutive downside CPI surprises and evidence that higher costs are being absorbed partly through margins rather than fully passed through to consumers. But the Bank still has to manage the lagged impact of higher energy costs, a steadier labour market and fiscal uncertainty. The BoJ faces the opposite problem: yen weakness, a steepening JGB curve and import-cost pressure all make it look behind the curve, even if no move is expected this week.

Wednesday’s market messgae: the market has lost two sources of comfort at once. The AI trade is no longer being given the benefit of the doubt, and the Fed is no longer guiding investors away from meeting-day uncertainty. Add renewed Middle East risk and a fragile chip complex, and the result is a defensive tape where rallies are harder to trust. Today is less about one bad earnings print or one oil headline, and more about the repricing of crowded confidence.

Overnight Headlines

• Fed’s Warsh Faces First Major Test As Divisions Emerge Within FOMC

• Citadel Securities’ Fed Rate Hike Call Adds To Market Angst

• Iran Launches Surprise Missile Attack On US Forces

• US Says It Intercepted ‘Surprise’ Iranian Missile Attack

• US Military, Saudi Forces Strike Sites Of Iran-Backed Groups In Iraq

• Australia Core Prices Cooler Than Expected, Easing RBA Pressure

• Japan Signals Steady Minimum Wage Gains, Backing BoJ’s Hike Path

• Yen’s Relentless Slide To Test Ueda’s Capacity To Calm Traders

• Russia Sanctions Bill Clears First US Senate Hurdle

• Rio Tinto (RIO)’s First-Half Profit Rises 47%, Raises Interim Dividend

• Ford Motor (F) Lifts Guidance On Forecast Of Higher US Automobile Pricing

• Visa (V) Beats Estimates, Takes $563 Charge Tied To Job Cuts

• NXP (NXPI)’s Upbeat Revenue Forecast Fails To Impress Investors

• Seagate (STX) Forecasts Upbeat Quarter On Strong AI-Driven Storage Demand

• SK Hynix’s Record Profit Misses Investors’ Lofty AI Expectations

• StanChart (STAN) Unveils Fresh $1 Billion Buyback As Profit Beats

FX Options Expiries For 10am New York Cut 

(1BLN+ represents larger expiries and is more magnetic when trading within the daily ATR.)

• EUR/USD: 1.1800 (EU1.91b), 1.1300 (EU1.1b), 1.1415 (EU1.09b)

• USD/JPY: 163.00 ($745.9m), 161.50 ($673.7m), 150.00 ($522m)

• USD/CAD : 1.4150 ($534.8m), 1.4100 ($501.1m)

• AUD/USD: 0.6900 (AUD1.02b), 0.7015 (AUD531.7m), 0.7025 (AUD342.7m)

• USD/MXN: 17.40 ($334.8m)

• GBP/USD: 1.3225 (GBP566.2m), 1.2175 (GBP450m), 1.3250 (GBP443m)

• EUR/GBP: 0.8575 (EU667.5m), 0.8525 (EU546.9m)

• NZD/USD: 0.5750 (NZD510m)

CFTC Positions as of 24/7/26

• Equity fund speculators cut their S&P 500 CME net short position by a hefty 43,383 contracts, bringing it down to 316,072. Meanwhile, equity fund managers have also adjusted their stance, trimming the S&P 500 CME net long position by 14,710 contracts to a total of 926,413.

• In the treasury futures arena, speculators are busy recalibrating their positions. They've reduced their net short position in CBOT US 5-year Treasury futures by 20,954 contracts, now standing at 1,273,329. On the flip side, they've ramped up their net short position in CBOT US 10-year Treasury futures by 48,031 contracts, pushing it to 879,706. The CBOT US 2-year Treasury futures saw a slight reduction as well, with speculators trimming their net short position by 2,880 contracts to 1,154,597. In a similar vein, the CBOT US UltraBond Treasury futures experienced a decrease in net short positions by 3,057 contracts, settling at 321,350. However, it's not all reductions; speculators have increased their net short position in CBOT US Treasury bonds futures by 7,734 contracts, now totaling 186,790.

• Bitcoin (BTC.X) is holding strong with a net long position of 3,054 contracts! 

• The Swiss franc is showing a net short position of -34,242 contracts. The British pound isn't faring much better with a net short position of -55,561 contracts. The euro follows suit with a net short position of -41,338 contracts, while the Japanese yen rounds out the list with a significant net short position of -152,125 contracts.

Technical & Trade Views

SP500 - 7450/40 weekly bull/bear level

• Daily VWAP Bullish

• Weekly VWAP Bearish

• Above 7390 Target 7560

• Below 7380 Target 7280

DXY - 100.5 weekly bull/bear level

• Daily VWAP Bearish

• Weekly VWAP Bearish>Bullish

• Above 99.75 Target 102.50

• Below 99.40 Target 98.40

EURUSD - 1.1485 weekly bull/bear level

• Daily VWAP Bullish

• Weekly VWAP Bearish

• Above 1.1550 Target 1.1780

• Below 1.1450 Target 1.1320

GBPUSD - 1.33 weekly  bull/bear level

• Daily VWAP Bearish>Bullish

• Weekly VWAP Bearish

• Above 1.3450 Target 1.3640

• Below 1.33 Target 1.3220

USDJPY - 162.85 weekly bull bear level 

• Daily VWAP Bullish>Bearish

• Weekly VWAP Bullish

• Above 162.85 Target 165

• Below 161 Target 160.50

XAUUSD - 4100 weekly bull bear level

• Daily VWAP Bearish

• Weekly VWAP Bearish

• Above 4200 Target 4500

• Below 4100 Target 3569

BTCUSD - 61k weekly bull bear level

• Daily VWAP Bearish>Bullish

• Weekly VWAP Bullish

• Above 62.5k Target 68.1k

• Below 61k Target 52.2k