Global markets turned defensive on Tuesday as a fresh surge in long-term borrowing costs collided with firmer oil prices, sending technology stocks tumbling across the US, Asia and Europe. Investors are now looking to Wednesday’s Federal Reserve minutes for clarity on the path of interest rates, while the standoff between the US and Iran continues to cloud the outlook for energy markets.
Wall Street closes lower as yields surge and tech stocks retreat
US equities fell as elevated Treasury yields, firmer oil prices and renewed weakness across technology stocks weighed on investor sentiment. The Nasdaq Composite dropped 1.3%, the S&P 500 lost 0.7% and the Dow Jones Industrial Average slipped 0.2%. Technology and industrial names led the losses, while energy, healthcare and consumer staples held up better as investors rotated into more defensive positions. The sell-off was heavily concentrated in chipmakers, with Sandisk tumbling 9.2% and seven of the ten worst performers among companies valued above $200 billion coming from the semiconductor sector.
Bond market tensions escalate
The bond market was the main driver of the day’s moves. The 30-year Treasury yield briefly touched 5.34%, its highest level since 2007, before settling back to 5.28%, while the 10-year yield hovered near 4.7%.
Commodities and safe havens diverge
Firmer oil prices added another layer of inflation concern, with WTI crude rising 0.8% to $85.18 a barrel and Brent edging up to $91.15 amid continuing uncertainty over the US-Iran conflict and disruption around the Strait of Hormuz. Traditional safe havens moved in the opposite direction, with gold falling 1.8% and silver dropping 4%, while weaker than expected US housing starts data added to worries about pockets of softness in the American economy.
Asian and European markets extend the sell-off
The pressure that hit Wall Street carried through to Asian and European trading, as higher bond yields and Middle East tensions weighed broadly on risk appetite.
Asia’s semiconductor rout deepens
Asian markets fell sharply, led once again by chipmakers. South Korea’s KOSPI plunged 5.5%, Japan’s Nikkei dropped 2.4% and China’s CSI 300 fell 2.4%, while Hong Kong was broadly flat. SK Hynix and Samsung slid 8.4% and 7.3% respectively. US index futures edged lower overnight, with S&P 500 futures down around 0.1%, Nasdaq 100 futures off 0.1% and Dow futures broadly flat. After-hours trading was subdued, with no major company-specific moves reported, as investors remained cautious ahead of the Fed minutes, while elevated bond yields, firmer oil prices and ongoing US-Iran tensions weighed on sentiment.
Europe follows Wall Street lower
European shares closed lower too, with the STOXX Europe 600 down 0.6% and the Euro STOXX 50 falling 0.9%. Rising bond yields and fiscal concerns weighed on sentiment, with technology stocks again among the weakest performers. ASML fell 5%, Infineon dropped more than 7% and Siemens Energy lost 5.5%, underlining the pressure building on companies tied to artificial intelligence infrastructure.
Currencies and commodities in focus
Currency and energy markets remained highly sensitive to the shifting policy and geopolitical backdrop.
Dollar softens ahead of Fed minutes
The US dollar steadied near 99.6 after touching two month lows, as investors awaited the Fed minutes for clues on the central bank’s next move. Against the euro, the dollar stayed relatively weak, with EUR/USD trading at 1.1582, meaning one euro bought $1.1582. Markets are increasingly pricing in a Fed pause in September, which is limiting near term upside for the greenback.
Oil extends its rally on Hormuz risk
Oil prices climbed for a fourth consecutive session, with WTI up 0.45% to $85.32 a barrel, as the unresolved standoff between the US and Iran kept shipping disruptions around the Strait of Hormuz in place. Limited tanker traffic through the waterway reinforced supply concerns, while a modest decline in US inventories added further support ahead of official inventory data.
Geopolitics and trade developments weigh on sentiment
Several geopolitical and trade headlines added to the cautious mood. Iran has said the Strait of Hormuz will remain closed until the US lifts its naval blockade, unfreezes assets, removes oil sanctions and halts military operations, and with negotiations stalled and tensions escalating, shipping traffic through the strait has largely halted. Brent crude has climbed above $90 a barrel as a result, reviving fears of energy driven inflation and a tighter monetary policy response. Separately, the Pentagon is reportedly weighing a permanent reduction of its military footprint in the Persian Gulf after the Iran conflict, potentially leaving damaged bases unrepaired and shifting forces westward, a move that could ease US exposure while freeing resources for other priorities, but would place more responsibility on Gulf allies for their own defence. On trade, Trump postponed planned 50% tariffs on Canada for three days, citing progress toward finalising a deal and floating a revival of the cancelled Keystone XL pipeline, following recent talks with Canadian Prime Minister Mark Carney aimed at defusing a renewed North American trade dispute.
Stocks and sectors on the move
A wide range of company specific developments shaped individual share price moves, spanning artificial intelligence hardware, corporate earnings and analyst rating changes.
AI and technology headlines
- Nvidia has reportedly seen small batches of its H200 AI chips reach China, with ByteDance and Tencent each receiving around 10,000 units. Although US authorities have approved purchases of up to 100,000 chips per company, Beijing reportedly wants the hardware kept outside the mainland, potentially in Hong Kong, to support domestic chipmakers.
- Cerebras unveiled its CS-4 AI server, built on three large WSE-3 Turbo chips designed to accelerate AI inference and reduce data-transfer bottlenecks, using TSMC’s 5 nanometre process, with 50% fewer components and available from Q3. Cerebras targets a capacity of 600 megawatts by 2027, intensifying competition with Nvidia.
- OpenAI saw second quarter revenue rise 18% to $6.7 billion, though operating losses widened to $12.3 billion, highlighting mounting pressure to accelerate growth. Anthropic more than doubled its revenue to $11.6 billion and reported an adjusted profit, overtaking OpenAI amid slower ChatGPT growth, pricing pressure and rising AI costs, increasing scrutiny ahead of a potential IPO.
- OpenAI also launched ChatGPT for Teens, aimed at users aged 13 to 17 with enhanced safety features and added parental controls, guided learning tools, quizzes, study reminders and quiet hours. Parents can link accounts, manage settings and receive notifications about high risk situations, as scrutiny of chatbot safety continues to grow.
Corporate earnings roundup
- Home Depot’s second quarter results beat expectations, with revenue up 5.7% year on year to $47.86 billion and adjusted earnings per share of $4.92. Comparable sales increased 1.7%, supported by broad based demand for smaller projects, and the retailer reaffirmed its fiscal 2026 guidance, expecting sales growth of 2.5% to 4.5% and broadly stable earnings.
- Baidu’s quarterly earnings and revenue fell 4% year on year to RMB 31.33 billion, missing forecasts, although AI Cloud Infrastructure revenue surged 50%, GPU Cloud revenue jumped 283% and AI Applications grew 3%, highlighting the company’s pivot toward an AI first model even as its core online marketing business remains under pressure.
- Klarna posted second quarter revenue of $1.04 billion, up 27% year on year and ahead of forecasts, with adjusted EPS also exceeding forecasts, but trimmed its full year 2026 guidance to between $4.08 billion and $4.16 billion, citing currency headwinds and softer German volumes. Transaction margin dollars rose 42%, GMV increased 18% and merchants grew 54%.
- Nokia is reportedly planning to close almost all of its mainland China sites by year end and cut most of its local workforce, marking a significant retreat after more than four decades in the market, reflecting mounting pressure from domestic telecoms equipment rivals, with only after sales services expected to remain.
Analyst calls and rating changes
- Mizuho downgraded Norwegian Cruise Line to Neutral, citing rising leverage and potential funding pressures. It expects EBITDA growth of just 2% to 3% next year, with leverage potentially exceeding 7 times. A projected $1.3bn funding gap could require an equity issuance, while higher fuel and interest costs pose further risks to 2027 earnings.
- RBC downgraded Hermès to Sector Perform, arguing the luxury group’s growth premium over its peers is narrowing. Leather Goods is expected to drive 63% of revenue growth through 2030, but slowing price increases and moderating volumes could constrain growth; RBC also expects flat EBIT margins and trimmed 2027 to 2028 revenue and EPS forecasts.
- Mizuho also kept a Neutral rating on Tencent but trimmed its price target, citing uncertainty over returns from rising AI investment. Revenue grew 11%, supported by gaming and advertising, while advertising rose 22%; however, record capital expenditure of RMB52.8bn pushed free cash flow negative, increasing scrutiny over whether Tencent’s AI investments can generate returns.
- Bank of America’s August fund manager survey pointed to unusually bullish investor positioning, with equity allocations at their highest since 2021 and cash at 3.5%, a signal some strategists view as a contrarian warning sign. Citi similarly sees constructive positioning, particularly in Europe and the US, but warns that stretched long positions, especially in the Russell 2000, leave markets increasingly vulnerable to profit taking and weaker growth.
- Bank of America separately raised its estimate for AI capital spending among the six largest hyperscalers by 17% to $3.6 trillion through 2028, highlighting AI as a major growth driver; banks could benefit through data centre financing, lending, deposits and advisory services, although data centre development faces increasing regulatory resistance across several US states.
- Drone related stocks drew strong analyst interest, led by Ondas with 111% implied upside, followed by Archer and Red Cat, on the back of recent defence contracts and successful electronic warfare tests. However, smaller companies remain highly speculative, while eVTOL names face certification risks and many valuations already reflect substantial future growth.
What to watch this week
Wednesday’s economic calendar is busy, with UK inflation data for July, US MBA mortgage data, weekly crude inventory figures and a 20 year Treasury auction all due, alongside the closely watched Federal Reserve minutes. On the earnings front, results are expected from Analog Devices, TJX Companies, Lowe’s, Progressive, AIA Group and Target, with the retail names likely to offer fresh insight into the health of the US consumer.
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