Daily Market Outlook, July 28, 2026

Patrick Munnelly, Partner: Market Strategy, Tickmill Group

Munnelly’s Macro Minute — Chips Crushed, Crude Cools

Markets are getting relief from oil, but not from AI. Brent’s retreat toward $88/bbl has eased some inflation anxiety ahead of the Fed, yet the bigger overnight story is a renewed semiconductor selloff as investors question the circularity, financing burden and competitive assumptions behind the AI capex boom. The result is an unusual tape: lower oil should be risk-positive, but chips are heavy enough to keep index sentiment fragile.

The semiconductor sector is again the pressure point. The US chip index fell 2.2%, while Nvidia dropped 5% after reports it is discussing roughly $250bn of financing guarantees tied to an OpenAI data-centre project. The details matter: the guarantees reportedly would not include Nvidia chips for that centre, though separate talks may involve financing OpenAI chip purchases of up to $350bn. That distinction has not reassured investors. It reinforces the concern that AI demand is becoming increasingly dependent on vendor financing, complex guarantees and circular capital flows.

That is why Nvidia’s credit risk is now part of the equity story. The cost of insuring against default has surged as markets digest a new wave of AI-linked deals valued at more than $750bn. Nvidia is still a dominant AI infrastructure winner, but investors are asking a sharper question: how much of the next leg of demand is organic customer capex, and how much is being enabled by the balance sheets of the suppliers themselves?

Asia bore the brunt of that worry. South Korea’s KOSPI plunged nearly 11%, triggering a circuit breaker, while Japan’s Nikkei fell 4.4%. Both markets have been among this year’s strongest performers, precisely because of their leverage to semiconductors, AI infrastructure and global risk appetite. That leadership has now become a vulnerability. High-beta winners are being forced to reprice as investors move from “AI spending is good” to “AI spending needs to earn its cost of capital.”

ASML added a second shock. Shares fell 8.5% after reports that a Chinese state-backed firm has begun producing immersion deep ultraviolet lithography machines, a key chipmaking technology long dominated by ASML. The report does not mean China has closed the entire lithography gap overnight, but it does challenge one of the market’s strongest assumptions: that bottleneck suppliers can preserve extraordinary pricing power indefinitely.

China’s chip ambitions are no longer just a policy slogan. CXMT’s extraordinary Shanghai debut — briefly making it China’s largest onshore-listed firm by valuation — and reports that Apple sought assurances that CXMT would not be added to a US trade blacklist both point to a more complicated semiconductor map. Investors are beginning to price the possibility that China is moving from catch-up mode toward credible competition in selected parts of the supply chain.

That has two implications. First, Western incumbents may face a longer-term margin and market-share challenge. Second, the profits from AI infrastructure may need to be distributed more broadly across a geopolitically fragmented ecosystem. The AI pie may still be huge, but markets are questioning whether the current leaders keep quite as much of it as valuations imply.

The timing is awkward because hyperscaler earnings are imminent. Apple, Meta, Microsoft and Amazon report later this week, and investors will focus less on headline revenue beats and more on AI capex discipline. The key questions are simple: are cloud and AI workloads monetising fast enough, are margins protected, and are capex plans being funded from operating cash flow rather than financial engineering? The market has become much less forgiving of “trust us, the returns will come.”

Oil is moving in the opposite direction, which should be helpful. Brent settled around $88/bbl after the US avoided military action against Iran for a third consecutive day. Trump said the US and Iran are in diplomatic talks, while warning that failed negotiations could bring renewed hostilities. Separately, Iran and Oman are reportedly working on an agreement to restore shipping operations through the Strait of Hormuz.

This is meaningful relief. Lower crude reduces the immediate inflation impulse, supports real incomes and gives central banks more room to avoid reacting mechanically to the Middle East shock. Bond yields edged lower as inflation fears eased ahead of the Fed announcement, although the move was hardly euphoric. Markets know that one diplomatic headline can cool oil, and one failed negotiation can reverse the move.

That is why the oil decline has not rescued equities. The market’s stress has shifted from macro inflation to micro-financial credibility in AI. Lower Brent helps the discount-rate backdrop, but it does not answer whether AI capex is too concentrated, too circular or too expensive. The problem has moved from the barrel to the balance sheet.

The Fed decision now lands in a more balanced but still uncomfortable setting. Markets price around a 38% chance of a US rate hike this week, higher than the immediate post-CPI lows but less extreme than when Brent was testing $100/bbl. A hold remains plausible, but the Fed cannot sound relaxed. Oil has fallen, but tariffs, geopolitical risk and resilient demand still point to upside inflation risks.

The Fed’s communication challenge is therefore to separate realised inflation from risk management. Softer recent inflation data and lower oil argue against rushing into a hike. But financial conditions are not especially tight, AI-linked investment remains large, and the supply-shock risk has not disappeared. A hawkish hold, potentially with dissent, still looks like the cleanest compromise.

For bonds, lower oil has removed some pressure, but not enough to generate a decisive rally. Investors have to weigh reduced energy inflation against the possibility that AI investment, tariffs and fiscal policy keep nominal demand firm. The decline in yields is welcome, but the bond market is not yet treating the oil pullback as a durable disinflationary turn.

The broader equity message is subtler than the index level suggests. Most S&P 500 stocks rose, but the index was little changed because semiconductor weakness offset wider participation. That is classic narrow-leadership reversal behaviour. When the largest winners stumble, market breadth can improve without the benchmark going anywhere. It looks healthier beneath the surface, but only if the mega-cap and chip weakness does not become a credit or capex confidence problem.

Tuesday’s market message: oil has stopped being the immediate market villain, but chips have taken its place. Brent at $88/bbl gives central banks and consumers breathing room, while diplomacy around Iran and Hormuz has reduced the near-term escalation premium. Yet the AI trade is now facing its most serious credibility test of the cycle: financing guarantees, China’s semiconductor push, Nvidia’s credit optics and hyperscaler capex all need answers. Lower crude can calm inflation risk; it cannot fix an overextended AI balance-sheet story.

Overnight Headlines

Trump Says There's A Good Chance Of An Iran Deal Amid Pause
Trump: I'm Ready For Strong Military Action If Iran Talks Fail
Iran-Oman Talks Focused On Restarting Hormuz Shipping Traffic
Citadel Securities Sees Warsh Delivering Surprise Fed Rate Hike
USTR's Greer: Trump's Latest Tariffs Won't Have An Economic Impact
US Probes Chinese Factories In Vietnam, Stoking New Tariff Fears
Japan's FinMin Touts 'Smooth' Government Relations With BoJ
Japan PM Takaichi To Order Food Tax Cut To 1%, Reports Say
RBA's Bullock Says Economy Cooling, Unsure If Rates High Enough
Asian Stocks Slide 10% From June Peak To Head For Correction
Bitcoin Weakens In Asia Trading As Fed Rate Decision Looms
Nvidia Behind $50B Lease For Texas Data Centre That Will Use Its AI Chips
Philips Lifts Margin Outlook After Getting US Tariff Refund
J&J To Pay $5.5B To Resolve Talc-Related Cancer Claims
Ukraine, Russia Black Sea Attacks Push Wheat Prices To Two-Year High

FX Options Expiries For 10am New York Cut

(1BLN+ represents larger expiries and is more magnetic when trading within the daily ATR.)

EUR/USD: 1.1425 (EU716.8m), 1.1945 (EU566m), 1.1450 (EU421.9m)
USD/JPY: 161.00 ($530m), 161.50 ($500.5m), 137.00 ($450m)
USD/CAD: 1.3470 ($496m), 1.3505 ($490m), 1.3175 ($485m)
USD/BRL: 5.0500 ($1.13b), 5.1000 ($787.4m)
AUD/USD: 0.6925 (AUD400m), 0.6525 (AUD375m)
GBP/USD: 1.3280 (GBP375m)
USD/KRW: 1475.00 ($420m), 1450.00 ($300m)

CFTC Positions as of 24/7/26

Equity fund speculators cut their S&P 500 CME net short position by a hefty 43,383 contracts, bringing it down to 316,072. Meanwhile, equity fund managers have also adjusted their stance, trimming the S&P 500 CME net long position by 14,710 contracts to a total of 926,413.
In the treasury futures arena, speculators are busy recalibrating their positions. They've reduced their net short position in CBOT US 5-year Treasury futures by 20,954 contracts, now standing at 1,273,329. On the flip side, they've ramped up their net short position in CBOT US 10-year Treasury futures by 48,031 contracts, pushing it to 879,706. The CBOT US 2-year Treasury futures saw a slight reduction as well, with speculators trimming their net short position by 2,880 contracts to 1,154,597. In a similar vein, the CBOT US UltraBond Treasury futures experienced a decrease in net short positions by 3,057 contracts, settling at 321,350. However, it's not all reductions; speculators have increased their net short position in CBOT US Treasury bonds futures by 7,734 contracts, now totaling 186,790.
Bitcoin is holding strong with a net long position of 3,054 contracts!
The Swiss franc is showing a net short position of -34,242 contracts. The British pound isn't faring much better with a net short position of -55,561 contracts. The euro follows suit with a net short position of -41,338 contracts, while the Japanese yen rounds out the list with a significant net short position of -152,125 contracts.

Technical & Trade Views

SP500 - 7450/40 weekly bull/bear level

Daily VWAP Bearish
Weekly VWAP Bearish
Above 7390 Target 7560
Below 7380 Target 7280

DXY - 100.5 weekly bull/bear level

Daily VWAP Bearish>Bullish
Weekly VWAP Bearish>Bullish
Above 99.75 Target 102.50
Below 99.40 Target 98.40

EURUSD - 1.1485 weekly bull/bear level

Daily VWAP Bearish
Weekly VWAP Bearish
Above 1.1550 Target 1.1780
Below 1.1450 Target 1.1320

GBPUSD - 1.33 weekly bull/bear level

Daily VWAP Bearish
Weekly VWAP Bearish
Above 1.3450 Target 1.3640
Below 1.33 Target 1.3220

USDJPY - 162.85 weekly bull bear level

Daily VWAP Bullish
Weekly VWAP Bullish
Above 162.85 Target 165
Below 161 Target 160.50

XAUUSD - 4100 weekly bull bear level

Daily VWAP Bearish
Weekly VWAP Bearish
Above 4200 Target 4500
Below 4100 Target 3569

BTCUSD - 61k weekly bull bear level

Daily VWAP Bearish
Weekly VWAP Bullish>Bearish
Above 62.5k Target 68.1k
Below 61k Target 52.2k