The Overnight Report: Tech Sell-Off, May CPI

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Good Morning,

The Australian market declined for a fourth consecutive session on Tuesday.

The ASX200 fell -29 points or -0.3% to 8.787.

Seven out of eleven sectors declined, led by ongoing selling of Technology stocks, down -4.1%, and miners.

Banks outperformed.

Today’s Big Picture, J.L.Bernstein

Tech Takes a Breather (beating)

Memory chip stocks sold off around the world, and it started in South Korea.

The Kospi had its worst day in years as traders cashed out of names like SK Hynix and Samsung.

The question driving it is simple: is the AI spending boom worth these prices?

After the run these stocks have had, a pullback like this looks healthy, not scary.

SpaceX Round-Trips Below Its Open

Elon Musk’s rocket company fell under US$150 this morning, the same price it opened at on June 12.

That briefly wiped out almost all of its post-IPO gains and pushed it under a US$2 trillion value.

Then it turned around and closed higher, breaking a three-day slide.

Same day, it locked in a US$25 billion bond sale to pay back loans and fund the buildout.

Oil Cools as the War Winds Down 

Brent crude closed at its lowest since the Iran war began back in late February.

Talks between Washington and Tehran are making progress, and the US waived some sanctions so Iranian barrels can flow again.

Trump says the Strait of Hormuz is open and moving record volume.

The energy scare that rattled markets this spring is beginning to look like it’s over.

NAB Markets Today Research, extract

There was a pervasive risk off theme in market moves with tech and chipmakers at the epicentre.

Those themes were evident through Asia as regional equity markets and US futures slid and the moves largely sustained overnight. Moves across rates markets were comparatively modest, though yields globally are generally a little lower.

The USD was broadly stronger, with the AUD a clear underperformer, down -1.2% to 0.6915. 

From central bank speakers, ECB’s Lane said even in the ECB’s milder scenario for developments in the Middle East, inflation was set to remain above target “for long enough to warrant a measured response.”

And Kazimir stressed data dependency, but concluded “I think the direction is clear and I think we still have work to do.”

Pricing pared the prior day after comments from Lagarde she didn’t see signs that would warrant a more forceful policy response at this stage. There are 19bp priced for September and 31bp priced by year end.

Data overnight was limited to global flash PMIs, though they did little to affect markets. Both Manufacturing and Services PMIs remain relatively stronger in the US than in Europe. The UK was the weakest of the three, with the composite slipping to a 14-month low of 49.4, driven by the services sector.

In commodities, oil was lower, with Brent down -1.0% to US$77.15, its lowest since the conflict began.

Traffic in the Strait remains far from normal, but some positive signals have come from more tankers transiting with satellite signals switched on. India, meanwhile, sent two ships back to the region for the first time since February.

The International Maritime Organization said it had received safety guarantees allowing hundreds of ships to exit the Persian Gulf. Iran and Oman said they’ll begin work on finding an agreement over the future administration of the Strait of Hormuz, including the cost of managing transit.

US-Iran discussions have seen progress including agreement to form working groups on implementing the MoU, but public comments from both sides have differed.

President Trump said US$12bn in unlocked financing will be controlled by the US and used to purchase American products, and Iran had agreed to “highest level Nuclear inspections long into the future.”

Both of which were rejected by Iran. Gold fell -1.9%, and base metals were also generally lower.

In rates markets, yields were generally lower amid the risk off tone but moves were modest compared to other markets. German 10yr yields were -3bp lower at 2.92%, while US 10yr yields lost -1bp to 4.5%.

US yields partially retraced off their lows during the US session, but remained lower over the day and the curve steepened a little, with 2yr yields 3bp lower.

Equity markets were in the red globally, with AI-related stocks and chipmakers at the epicentre. Asian markets led declines through our session yesterday, with the KOSPI down -10% and the Nikkei losing -3.6%.

There were reports noting forced liquidation for leveraged retail investors and added selling pressure tied to leveraged ETFs tracking SK Hynix and Samsung.

US equity futures tracked the weakness in Asia. The S&P500 opened down -1.7%, the low for the day, but still closed -1.4% lower.

IT and industrials led declines, while healthcare and consumer staples rose more than 1%. The Nasdaq was -2.2% lower, and the Philadelphia semiconductor index lost almost -8%, although that just takes it back to where it was on Wednesday. 

NAB forecast for May CPI: We expect May CPI to accelerate to 4.4% from 4.2% yoy. Consensus looks for 4.3%.

Our forecast anticipates a spike in international airfares to partly offset a large decline in fuel prices. We see Trimmed mean at 0.3% mom and 3.5% yoy, in line with consensus.

The sharp fallback in refined fuel prices means Q2 headline inflation is tracking well below the RBA’s May forecast and underlying inflation is unlikely to surprise to the upside of the RBA’s 1.0% qoq estimate

The Korean Butterfly Effect Takes Grip, Stephen Innes, SPI Asset Management

Wall Street was handed an overdue AI wake-up call on Tuesday, delivered in cascading fashion from Seoul to Silicon Valley.

South Korea’s KOSPI plunged -10% from its record highs as the country’s retail-leveraged ETF complex triggered a small butterfly effect with very large global wings. 

By the time that turbulence travelled through the global technology complex, the Nasdaq100 had fallen -3.3%, the semiconductor index had dropped roughly -8%, and the biggest AI winners were being marked down as though the market had suddenly remembered that even the most compelling long-term story can become an expensive short-term trade.

The Korean episode matters less because it changes the economics of artificial intelligence and more because it exposed the fragility of the market structure surrounding the theme. 

The AI trade has been one of the most powerful momentum engines in modern markets, with a relatively small group of semiconductor, networking, cloud, and data-centre names carrying a disproportionate share of the index’s upside. 

When retail leverage, options hedging and concentrated positioning all begin leaning in the same direction, a tremor in one corner of the market can travel much faster than the fundamentals.

That is precisely what unfolded. Heavy negative-delta 0-DTE flow appeared to accelerate the downside in US technology, creating the familiar feedback loop where lower prices force dealers to sell into weakness, which in turn makes the weakness more visible and more violent. 

The Dow managed to remain green, which is telling. Investors were not simply throwing the entire equity market overboard. They were reassessing the price they were prepared to pay for the companies most directly tied to the data-centre buildout and the AI capital-spending boom.

The scale of the decline needs to be read against the scale of the preceding run. Of the 12 technology stocks down -8% or more on the day, all but one were still up in double digits year to date, and most had more than doubled in just six months. 

That suggests investors were not abandoning the AI infrastructure story outright. They were beginning to question how much more they were willing to pay for companies whose share prices had already discounted an extraordinary amount of future data-centre growth.

The broader market is still running well ahead of the slower-moving non-tech economy, but that does not mean the AI earnings machine has suddenly run out of fuel. Semiconductor demand, cloud backlogs and data-centre spending remain strong, and that earnings momentum is unlikely to disappear because one trading session turns ugly.

The more uncomfortable question sits further down the runway. Markets are no longer just pricing a powerful earnings cycle; they are pricing a cycle that appears able to compound almost without interruption. 

The issue is not whether the chipmakers can deliver this quarter. They can. It is whether investors have already paid today for several years of uninterrupted capex growth, leaving very little margin for a pause, a slowdown or merely a less spectacular rate of acceleration.

That is the late-cycle trap in investment booms. The numbers can remain excellent even as the shares still struggle, simply because the market has conflated a peak run rate with a permanent annuity.

The AI trade may still have substantial legs, but the further the market runs ahead of the macro, the more violent the reminder becomes when even a small crack appears in the growth narrative.

The next phase of the AI story will likely be more demanding. As capital-expenditure growth eventually slows, the market will need to see the baton passed from infrastructure suppliers to companies that can turn AI deployment into higher productivity, stronger margins and better returns on equity.

That transition may happen, but it is not an automatic handoff. The market has spent much of this year pricing the construction of the railway. At some point, investors will want to see the trains carrying paying customers.

For now, the non-AI economy is not obviously rolling over. Retail activity has held together reasonably well into late June, while World Cup-related spending appears to be providing a temporary lift to hotels, beer, footwear and selected consumer names. 

That leaves Micron as the immediate focal point. Its results will be treated as a referendum on whether AI memory demand remains strong enough to justify the extraordinary enthusiasm built around the semiconductor complex. 

The shares fell -13% on Tuesday, which means expectations are no longer entirely one way. Still, the bar remains high. A strong report could stabilise the complex and reinforce the argument that this was merely a cleansing of excessive positioning.

A disappointing guide, however, could turn Korea’s butterfly effect into a much larger weather system.

US Recession Monitor, Oxford Economics Extract

• The ending of the Iran war and a more hawkish Federal Reserve will pull the economy in opposite directions. Consumers, particularly low- and middle-income households, will benefit from a smaller squeeze on their real incomes. 
• However, higher interest rates are another headwind to the recovery of non-AI business investment. Our modeling implies that transportation equipment investment is particularly exposed. Still, the offset from fiscal policy and the AI buildout will ensure investment growth remains positive in 2026.
• The housing market has shown resilience despite mortgage rates near 6.5%, with our nowcast for residential investment tracking near 2% in Q2. However, higher-for-longer mortgage rates, downbeat sentiment, and relatively high unsold inventory will keep the housing market trending mostly sideways the rest of the year.

Corporate news in Australia:

• Monash IVF ((MVF)) and Medmate ordered to stop tracking website searches in breach of privacy laws
• Advent Partners has acquired Brisbane-based training management software provider aXcelerate, expanding its exposure to education technology and workforce training markets
• KKR-backed Zenobe raised $400m in debt funding to support expansion of its Australasian electric vehicle fleet and energy storage operations 
• FDC’s planned IPO is expected to generate a $240m windfall for founder shareholders and create significant wealth outcomes for employees participating in the listing 
• PMT Security Systems is seeking to sell a 30-40% stake in the business after decades of family ownership, opening the door to a new strategic investor 

On the calendar today:

-AU May CPI

-JP May PPI services

-US 1Q Current A/C

-US May building permits

-US May new home sales

FNArena’s four-weekly calendar: https://fnarena.com/index.php/financial-news/calendar/

The Australian share market over the past thirty days…

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