Stocks Set to Open Lower as SK Hynix Sparks Chip Selloff, U.S. Inflation Data and Big Bank Earnings Awaited

September S&P 500 E-Mini futures (ESU26) are down -0.29%, and September Nasdaq 100 E-Mini futures (NQU26) are down -0.94% this morning, pointing to a lower open on Wall Street as chipmakers came under renewed selling pressure following a selloff in their South Korean peers.

Memory chip stocks tumbled in South Korea, sparking a selloff in AI-related stocks around the world. SK Hynix plummeted over -15% in Seoul, marking its steepest drop on record, as its historic U.S. trading debut on Friday triggered a "sell the news" reaction and profit-taking. SK Hynix's slump weighed on fellow memory giant Samsung Electronics, which sank more than -10%. U.S. chip and AI infrastructure stocks looked set to join the global selloff, with Sandisk (SNDK) falling over -6% and Micron Technology (MU) dropping more than -5% in pre-market trading. SK Hynix's ADRs were down over -9% in pre-market trading.

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Sentiment was also dampened by the weekend's military escalation in the Middle East, which drove the price of WTI crude up more than +3% on Monday. The U.S. and Iran exchanged fresh strikes overnight into Monday while issuing conflicting statements over whether the Strait of Hormuz remained open to shipping. Over the weekend, Tehran said the strait would now be closed "until further notice," while the U.S. military and maritime authorities said that shipping continued through its southern route.

Treasuries fell across the curve on Monday as higher oil prices stoked speculation that the Federal Reserve will raise interest rates to curb inflationary pressures. The 10-year T-note yield rose two basis points to 4.58%.

This week, investors look ahead to the release of key U.S. inflation data, Federal Reserve Chairman Kevin Warsh's first congressional testimony, and the start of the second-quarter earnings season.

In Friday's trading session, Wall Street's major equity averages ended in the green. Meta Platforms (META) climbed about +6% and was the top percentage gainer on the S&P 500 and Nasdaq 100 after research firm SemiAnalysis published a positive report on the Facebook parent's AI compute business. Also, Nvidia (NVDA) rose more than +4% and was the top percentage gainer on the Dow after the U.S. Commerce Department said the UAE qualifies for more favorable treatment under U.S. export control laws, paving the way for the country to buy advanced AI chips from Nvidia. In addition, WD-40 Company (WDFC) surged over +10% after the lubricating oil maker posted stronger-than-expected FQ3 results and raised its full-year guidance. On the bearish side, cybersecurity stocks slid, with Okta (OKTA) falling more than -6% and CrowdStrike Holdings (CRWD) dropping over -5% to lead losers in the Nasdaq 100.

The U.S. consumer inflation report for June will be the main highlight this week as investors gauge whether and when the Federal Reserve might raise interest rates. Economists expect the consumer price index to post its first monthly decline since the onset of the pandemic in 2020 amid the recent drop in gasoline prices. On an annual basis, headline inflation is projected to ease to +3.8% in June, while core inflation is expected to hold steady at +2.9%. The U.S. June Producer Price Index will also draw close attention. Hotter-than-expected readings would likely reinforce expectations of a Fed rate hike before year-end, while in-line or softer prints would support Mr. Warsh's recent comments that inflation pressures are easing. Other noteworthy data releases include Retail Sales, Core Retail Sales, the University of Michigan's consumer sentiment index (preliminary), Industrial Production, Manufacturing Production, Initial Jobless Claims, Building Permits (preliminary), Housing Starts, Pending Home Sales, the Export Price Index, the Import Price Index, the Philly Fed Manufacturing Index, and the Empire State Manufacturing Index.

Fed Chairman Kevin Warsh's semi-annual monetary policy testimony on Capitol Hill will also be in focus this week. As Fed Chairman, Kevin Warsh is required by law to deliver testimony before Congress twice a year. Warsh will testify before the House Financial Services Committee on Tuesday and the Senate Banking Committee on Wednesday. Market participants will be closely watching Warsh's testimony for fresh insight into his views on inflation and interest rates, as well as for updates on his plans to reform the central bank. In addition to Mr. Warsh delivering the Fed's policy report, a host of other Fed officials, including Waller, Bowman, Barr, Goolsbee, Cook, Williams, Musalem, Logan, Schmid, and Jefferson, are scheduled to speak this week.

In addition, the Fed will release its Beige Book survey of regional business contacts this week, providing anecdotal insight into economic conditions across the country. The Beige Book is published two weeks before each meeting of the policy-setting Federal Open Market Committee.

Meanwhile, U.S. rate futures have priced in a 66.3% probability of no rate change and a 33.7% chance of a 25 basis point rate hike at the upcoming monetary policy meeting.

Second-quarter corporate earnings season kicks off this week. Five of the six largest U.S. banks—JPMorgan Chase (JPM), Bank of America (BAC), Goldman Sachs (GS), Wells Fargo (WFC), and Citigroup (C)—will report earnings on Tuesday. Morgan Stanley (MS) will complete the big bank earnings lineup on Wednesday. Most of the major banks are expected to post their second-highest stock trading revenue on record after months of market volatility. Taiwan Semiconductor Manufacturing (TSM), Johnson & Johnson (JNJ), UnitedHealth Group (UNH), Netflix (NFLX), Abbott Labs (ABT), BlackRock (BLK), Progressive (PGR), and Elevance Health (ELV) are among other major names scheduled to deliver quarterly updates during the week. Although PepsiCo (PEP) and Delta Air Lines (DAL) started the second-quarter reporting period last week, results from big banks have traditionally marked the unofficial start of the earnings season. According to Bloomberg Intelligence, companies in the S&P 500 are expected to post an average +23% jump in quarterly earnings for Q2 compared to the previous year.

In the bond market, the yield on the benchmark 10-year U.S. Treasury note is at 4.58%, up +0.42%.

The Euro Stoxx 50 Index is up +0.08% this morning, starting the week on a subdued note as investors weighed escalating tensions between the U.S. and Iran. Strength in energy stocks, lifted by higher oil prices, helped offset weakness in tech and travel stocks on Monday. Technology stocks came under pressure after South Korea's SK Hynix suffered the steepest drop on record in Seoul, while higher oil prices weighed on travel stocks. Meanwhile, investors are looking ahead to the start of earnings season, with ASML set to provide a key test for the technology sector this week. Investor focus this week is also on final Eurozone inflation data for June. Allianz Research economists said they believe the peak in inflation is "already behind us." In addition, investors will watch Eurozone industrial production data for May and the U.K.'s May GDP, along with speeches from ECB officials, including Executive Board member Isabel Schnabel and Governing Council member Fabio Panetta. Elsewhere, Citigroup strategist Beata Manthey double-downgraded U.K. equities to Underweight from Overweight, saying they are "less appealing in an environment where earnings growth and market leadership are broadening." In corporate news, Plus500 (PLUS.LN) plunged over -13% as the trading platform operator's guidance failed to impress investors. Also, Kongsberg Gruppen (KOG.O.DX) slumped more than -8% after the Norwegian defence and technology company posted weaker-than-expected Q2 orders, while a recent spin-off weighed on its cash flow more than anticipated.

Asian stock markets today closed in the red. China's Shanghai Composite Index (SHCOMP) closed down -2.06%, and Japan's Nikkei 225 Stock Index (NIK) closed down -1.92%.

China's Shanghai Composite Index closed sharply lower and hit a three-month low today as a weekend of attacks and counterattacks in the Middle East soured risk appetite and prompted profit-taking across some sectors. Satellite, defense, and rare earth stocks led the declines on Monday. Semiconductor and other AI-related stocks also slumped, erasing part of their recent strong gains. At the same time, defensive sectors such as banks and energy advanced. "With weak domestic demand combined with strong profit-taking sentiment in certain sectors, the market is unlikely to stage a sustained sharp rally, and range-bound fluctuation will remain the dominant trend," according to Nanhua Futures analysts. Meanwhile, The Wall Street Journal reported on Monday that fast-fashion retailer Shein cleared a key hurdle for its long-awaited Hong Kong initial public offering after securing China's approval for a listing that could value the company at more than $40 billion. In corporate news, MiniMax Group tumbled over -17% in Hong Kong after JPMorgan Chase cut its price target on the AI model maker for the second time in less than a week, citing value dilution concerns from fresh fundraising. Investor attention this week is on China's second-quarter GDP as well as June trade and activity figures, which will provide fresh clues on whether Beijing is on track to achieve its growth target this year. China's economic growth is estimated to have slowed to 4.5% in the second quarter from 5.0% in the first quarter, bringing the year-to-date rate down to 4.8%. ANZ Research economists said part of the slowdown reflected an extended spring holiday in April and May that reduced the number of working days, along with slower fiscal spending.