Market warp: Rate Forecasts and Semiconductors in the Spotlight

European markets are back to declines after a one-day breakout from a deeper sell-off streak. Pressure on Europe retains its character, driven by the commodities market and the global trend of rising current and expected interest rates.

• In today’s session, the second factor is increasingly dominating downside contributions, due to sharper declines in markets, sectors, and companies that are exceptionally sensitive to interest-rate levels.
• The sell-off in Europe is broad, but still moderate in magnitude. The percentage leader to the downside is the UK’s FTSE, with futures down about 0.7%. Right behind it are the main indices from Germany, France, and Spain, each down around 0.5%. The Netherlands and Switzerland are holding up relatively well by comparison.
• Late in the week, attention is focused mainly on the BoJ decision. The Bank of Japan raised rates, as expected, by another 25 bps to 1.25%, the highest level in more than 30 years. In the longer term, a key point may be that two hawkish board members may step down next year, which could change the balance of power within the BoJ board.
• Looking at reactions and commentary from analysts and investment bankers, forecast trends are shifting toward a more hawkish monetary policy across developed markets. More importantly, dispersion between extreme scenarios is increasing. The market is increasingly split between groups pricing in meaningful hikes from current levels and groups that see less room for further tightening and expect rate cuts as early as next year.
• Tensions in the oil market are easing thanks to a ceasefire between the Houthis and the US, still largely assumed. In addition, Saudi representatives told Bloomberg that the east to west pipeline is set to resume some flows within a few days.
• Uncertainty around commodities and the path of interest rates is being offset by a cluster of positive news from memory and semiconductor companies.

Company news

• CXNT: China’s DRAM memory production leader announces plans to enter the NAND flash memory market. This would mean moving into a new margin tier and, if successful, could pose a serious challenge to Samsung and Micron. For now, valuations are mixed because Samsung shares are rising strongly today, implying limited faith in CXNT’s near-term success in this area.
• Nestle (NESN.CH): The company is down more than 2% today after news from Russia. Russian authorities signed a decree placing the company’s assets in the Russian Federation under external administration. As of today, the company operates six factories in Russia, with annual revenues of roughly USD 2.4 billion.
• STMicroelectronics (STM.FR): Shares are up 2.5% after a UBS note emphasizing the company’s unique exposure in Europe to AI and data centers.
• Intel (INTC.US): Solidigm, a subsidiary of Korea’s SK Hynix, is considering building a NAND memory plant in New York State. The company noted that this investment would be independent of the investments currently being discussed in Ohio in cooperation with Intel. Intel is up about 7%.
• SoftBank (SFT.DE): Bloomberg reports the company is increasing its margin loan secured against ARM to USD 25 billion.
• Tesla (TSLA.US): Friday’s session brings a solid batch of news to price in within robotics. Tesla is expected to increase production of Optimus robots to 50,000 units. Toyota announces plans to deploy 400,000 humanoid robots across its facilities. Chinese suppliers of robot components are up several percent on these headlines.
• Rheinmetall (RHM.DE): Representatives of tank maker KNDS told Bloomberg analysts the company is seriously considering delaying its IPO due to negative sentiment toward defense sector stocks.
• US Rare Earth (USAR.US): The US rare-earth mining and refining company announces a partnership with French quantum computing solutions maker Pasqal Holding. The companies aim to jointly develop a breakthrough technology for separating rare-earth elements. The stocks are up 3% and 6%, respectively.

Macroeconomic data

• German PPI rose clearly above expectations to 4.6% versus 3.9% expected and a prior reading of 3% year over year. The monthly increase was 1.1% versus 0.4% expected.
• UK retail sales rose above expectations to 2.4% versus 1.9% expected and 1.2% previously.
• These figures imply persistent inflation pressure and or a strong consumer, supporting further plans to tighten monetary policy in Western Europe.
• Industrial production slowed in August from 4.8% to 4.3%, versus expectations for an increase to 6.3% year over year. Given the strong rise in producer prices, the drop may have been driven by companies delaying orders in anticipation of better pricing later.
• Fifteen minutes before the US session opens, industrial production data will be released. The market expects growth of 0.3% month over month and capacity utilization of 76.4%.

Commodities

• Energy markets receive a modest downward impulse on progress in negotiations with the Houthis and repair work in Saudi Arabia. Brent crude retreats to USD 103, and European gas falls below EUR 80.

FX

• BoJ rhetoric and expectations triggered a strong sell-off in the yen. The dollar strengthens against the yen to 157.9.

Crypto

• Crypto markets signal a moderate return of risk appetite. Bitcoin is up more than 2% in the afternoon, returning to USD 78,000.