AFS Markets Blog: Morning 07/07/2026

• Meanwhile in markets, this is the top. Or, better said, this was the top. When a tech bellwether like Samsung delivers better than expected earnings and blowout revenue growth and the stock price still collapses, punters likely reason that we’re past the peak of the – choose your poison – the AI boom or bubble;

• Earlier in the session, AI darlings SK Hynix and Samsung collapsed back into bear market territory with double digit intraday declines in share prices. The Kospi main index plunged eight percent, triggering a circuit breaker for the sixth time this year (according to the folks at Bloomie, there have been twelve circuit breaker triggers since 2000 – no typo). All this stuff might be off the lows, but the losses incurred from the peak are too self-evident and speak for themselves;

• A recurring theme we see in the market commentariat on the eye-popping moves in everything AI-related is the decline in token prices as measured by the Silicon Data Large Language Model (LLM) Token Expenditure Index. To be sure, tokens are units of text that AI – LLM models – read and spew out back at you when you converse with a chatbot. A literal interpretation of the decline in token prices is lack of demand from businesses or consumers that use the LLM models. That and/or lack of pricing power among the likes of OpenAI, Google, Antrophic because of oversupply of LLM. A more benign interpretation is that buyers switch to cheaper models, thus depressing the token price even though the volume of demand hasn’t changed. Or perhaps there is another less literal interpretation of the token price decline that I fail to grasp;

• Whatever the reason for the decline in token prices, the problem that all this AI investment might never become profitable has become even more glaring. We see this in indices of hyperscaler stocks (companies that actually own or operate the massive data centers on which the LLMs run), which have stalled since the autumn of 2025 and have moved sideways ever since, though with sometimes violent price swings. Semiconductor stocks – memory in particular – surged this year. But, as we’ve seen, here the party seems to be over as well;

• Another violent tech rout has hit broader equity markets too. I clock the Nikkei down almost two and a half percent. Chinese markets are down too, but with more modest losses. S&P 500 futures are off the lows and down a measured 0.3%;

• US Treasury yields are up several bps across the curve in tandem with rising crude oil prices. Brent crude oil futures are approaching the $73 handle following an overnight attack on a Qatari LNG tanker near the Omani coast as it exited the Strait of Hormuz. The symbolism of the attack isn’t lost on us. The Qatari were intimately involved with brokering the US-Iran deal. And Oman has managed to stay out of the carnage of war most of the time while holding communication lines fully open with both warring sides;

• For us Europeans, the rise in natural gas prices to a one-month high following the attack is problematic – to say the least. While crude oil prices are at more or less benign levels – having falling close enough to pre-war prices – the same cannot be said about equally important natgas prices. Natgas prices as measured by Dutch futures are roughly halfway between the war peak and pre-war levels;

• ESTR swaps are a bit higher on the back of the tanker attack, with the ECB-dated ESTR for the September Governing Council meeting up 2bps at 2.34. In related news, hawkish ECB Board Member Schnabel was on the wires defending the hawkish position that another hike is necessary. She warned that the Iran deal is fragile and that energy prices, and natgas in particular, haven’t even come close to returning to pre-war levels;

• The broad dollar hasn’t gained much on the renewed Iran tensions. As a matter of fact, USDJPY even dropped below the 162 handle, albeit slightly;

• Looking ahead, key events today include the French court ruling on National Rally leader Marine Le Pen’s political fate, ECB-speak, and, of course, the NATO summit in Ankara. European defense stocks have had quite the run-up ahead of the summit. Punters reason that to placate President Trump, the Europeans must spend big on weapons and stuff.

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