AFS Markets Blog: Midday 14/07/2026

• Meanwhile in markets, with the escalating US-Iran conflict dominating headlines and crude prices surging, the stalling AI trade has been relegated to the back pages. Our AI index – which tracks the major hyperscalers – has officially slipped into correction territory, while high-flyers SK Hynix and Micron have plunged deep into bear market territory;

• The damage is particularly visible in South Korea, where the KOSPI has tumbled 25 percent in just over three weeks. The sell-off has erased nearly half of the index's year-to-date gains, leaving it ‘only’ 60 percent higher for the year – its lowest level since April. By comparison the Philadelphia Semiconductor Index – which tracks major US-listed semiconductor firms – has proven more resilient: falling ‘a mere’ 15 percent from its peak. Notably, it has now clearly outperformed the KOSPI on a YTD basis for the first time in 2026 – sitting on 75 percent gains;

• Despite their falling stock prices, the memory chip giants that lead the AI boom/bubble are still struggling to keep up with demand. Memory chip rental rates – a barometer of the physical shortage of these chips – are at record levels and continue to climb higher;

• Yet the memory chip shortage will not last forever. SK Hynix, Samsung and Micron are all constructing new plants that are expected to come online by 2028. The question is now whether this wave of new supply will cap the sector's extraordinary profit growth – and whether end-user demand for AI will remain strong enough to justify the investment being poured into these memory fabs;

• The Silicon Data Token Expenditure Index – which tracks actual spending on large language model usage – has fallen 20 percent from its May peak. While the index remains around 30 percent above its end-2025 baseline, the slowing pace of growth is fueling concerns that AI demand may not be scaling quickly enough to justify the investments being poured into the global data center buildout;

• The market bellwether for overinvestment concerns is Oracle. Roughly half of the company's enormous contract backlog is tied directly to OpenAI – a firm which has reportedly lost over $35 billion since 2020. Worries over whether OpenAI can eventually pay its contracts with Oracle have widened Oracle’s CDS spreads sharply, it currently sits within touching distance of its all-time high;

• Shifting to some broader market commentary, the Stoxx 50 is down over three quarters of a percent this morning while S&P 500 futures have undone their earlier losses and are holding near yesterday's close. At pixel time Brent crude prices stand at $86.55 – the highest level in a month’s time;

• Moving to fixed income, Bund yields are up 1–6bps in a bear-flattening pattern today, driving the 2-year Bund yield to a new Iran war high of 2.78 percent. The upward pressure comes as ECB-dated ESTR forwards now fully price in a rate hike by the September meeting – with a total of 45bps of tightening priced in by year-end. Across the Atlantic, US Treasury yields have ticked up about a basis point from yesterday's close – similarly pushing the 2-year UST yield to its own war high of 4.28 percent. FOMC hike pricing is already competitive for the July meeting later this month – at 11bps. Year-end pricing is also up to 43bps of tightening – up nearly 10bps this past week;

• Later this afternoon, the US CPI release for June is poised to deliver crucial evidence to either justify a hike or support a hold at the next FOMC meeting. Consensus expects core inflation to land at 2.8 percent year-on-year and 0.2 percent month-on-month, but Fed Governor Waller has already warned that a hot core print would put a rate hike firmly on the table. The flurry of Fed-speakers scheduled to speak later today will likely offer more context on support for a hike in two weeks' time.

‍

‍