How long can the firehose of AI spending keep flowing?

EU mid-market update: How long can the firehose of AI spending keep flowing? TSMC blowout capex increase tempered by margin pressures; UK GDP firms up BOE hike expectations.

Notes/observations

- A second consecutive soft US inflation print drove the constructive backdrop into the European open. June PPI unexpectedly fell 0.3% (vs flat expected), reinforcing Tuesday's cooler CPI, while July Empire Manufacturing surprised strongly to the upside on growth and new orders with prices paid retreating. The combination pushed markets to price a Fed firmly on hold well into the autumn, aided by mildly dovish Williams comments and the latest Beige Book, and by Chair testimony pushing back on the idea that AI capex could drive persistent inflation.

- UK data was mixed: May GDP edged up 0.1% m/m (as expected) but industrial production disappointed, with construction weak and the trade deficit narrowing. Resilience keeps a November BOE hike fully priced, lifting 10y gilt yields toward ~4.97%. For the ECB, consensus sees a hold next week after June's hike, with oil volatility a reason to avoid strong directional signaling - though some still expect a September move. SNB minutes framed the recent inflation pick-up as narrow and energy-driven, kept the 0% conditional-rate path through 2028, and reiterated FX-intervention willingness against franc strength. Italy final CPI confirmed at 3.0% y/y.

- AI complex remains the key swing factor and continues to whipsaw. US semis/memory and AI-infrastructure names saw fairly aggressive profit-taking with rotation back into hyperscaler's, software and services. TSMC printed a blowout Q2 (record margins, gross margin ~67.7%, big capex step-up) and confirmed a further $100B US investment lift to ~$265B, yet ADRs sit down ~5% pre-market - a "sell the good news" signal worth flagging. Nvidia deepened its Japan build-out (Rubin/Noetra AI factory, robotics chips), and xAI open-sourced its Grok Build coding agent. Two governance/regulatory watch-items: South Korea is halting new single-stock leveraged ETF/ETN listings after Samsung/SK Hynix products amplified swings (relevant for AIQ-type exposure), and the BOE's Breeden explicitly flagged leverage supporting AI valuations and urged stress-testing - theme European supervisors are clearly leaning into.

- TSMC posted slightly mixed Q3 results, beating revenue expectations with guidance of $44.6–45.8B (well above $42.6B consensus) while gross margin came in slightly ahead at 66–67% versus 65.9% estimates. However, operating margin guidance of 56–58% fell short of both consensus (57.7%) and the prior quarter’s 60.3%, reflecting steep dilution from the aggressive N2 ramp and overseas fab expansion. The company raised its FY26 revenue growth target to slightly above 40% and hiked CapEx sharply, underscoring continued explosive AI demand that management called “stronger and stronger,” yet near-term margin pressure and softness in consumer/mature nodes temper the picture.

- US–Iran hostilities remain elevated but directionless. CENTCOM ran a fresh strike set (ended 9pm ET), with explosions near Bandar Abbas and Iranian/IRGC retaliation drawing Kuwaiti and Bahraini air-defence responses, including a reported strike on a Kuwaiti airbase radar. Crude is holding firm but refined products and European gas are grinding higher. Market's working assumption is eventual return to talks, though the Strait of Hormuz remains the unresolved flashpoint; the IEA's Birol warned it must reopen within weeks to avoid crisis, and shipping activity has already dropped sharply, renewing energy-supply concerns.

- China’s World Artificial Intelligence Conference (WAIC) opens July 17-20 in Shanghai with President Xi Jinping delivering the keynote — his first in-person appearance since 2018 — underscoring Beijing’s view of AI as a core driver of economic growth, technological sovereignty, and global standards-setting, with heavy emphasis on open-source models as a strategic counter to US dominance. The event will showcase massive domestic momentum through Huawei’s new Ascend SuperPoD (US-chip-free), Biren/MetaX supernode clusters, Dongfang Suanxin’s architecture innovations bypassing advanced lithography, and Moonshot’s imminent Kimi K3 release timed to steal the spotlight. Physical AI and embodied intelligence emerge as critical themes, highlighted by Xiaomi’s versatile Robotics-1 foundation model and Shanghai’s aggressive push to build national-scale, hardware-agnostic robotics training data infrastructure targeting billions of hours.

- SpaceX has sharpened its orbital AI ambitions with concrete hardware specs for the Sat V1 spacecraft: peak power now raised to ~250kW (battery-assisted) and average sustained power of ~160kW, sufficient to run a full NVIDIA NVL72 rack of 72 Rubin GPUs and 36 Vera CPUs for inference workloads. This sizing moves orbital AI from abstract concepts to rack-scale reality, with daily energy draw around 3.84MWh, large batteries for eclipse/transient smoothing, expanded solar arrays, and advanced radiative cooling to manage the extreme thermal challenge of dissipating nearly 160kW of heat in vacuum.
Simultaneously, Starship Flight 13 is targeting launch today (July 16), carrying 20 advanced Starlink V3 satellites equipped with laser crosslinks and diagnostic cameras, while testing upgraded booster recovery, upper-stage relight, and next-gen heat shield technologies.

- Busy corp tape. ABB recommended a 503p/share cash offer for Rotork (~$5.5B) alongside a mixed Q2 but a large orders beat (+28% organic vs +11% expected). Uber confirmed a voluntary takeover offer for Delivery Hero at €41.50/share (~€12.5B). Publicis beat on H1 and raised FY organic growth guidance to +4.5–5%. Novo Nordisk secured EU approval for oral Wegovy - the first oral GLP-1 for weight management in Europe, a landmark. On the downside, Telenor cut FY EBITDA guidance to flat/slightly-negative; Sodexo unveiled its "Shift & Grow 2030" plan with modest initial targets.

- Ukraine has dramatically escalated its sea drone campaign, extending from the Azov Sea deep into the Black Sea with precision strikes on shadow fleet tankers, creating what Russian sources themselves describe as their own miniature Hormuz Strait crisis. In just nine days the Azov phase alone produced an astonishing 116+ vessel hits — frequently double digits per night — targeting critical feeder tankers and infrastructure in a campaign already eclipsing the scale of the 1980s Iran-Iraq tanker war. The disruption threatens roughly a quarter of Russia’s wheat exports during peak harvest season, paralyzing Volga-Don canal logistics, forcing vessel queues, spiking global wheat futures, and delivering billions in potential economic damage while exacerbating fuel shortages in Crimea.

- Meanwhile, Pres Zelenskiy is facing a sharp political backlash after firing popular Defense Minister Fedorov, triggering thousands-strong protests outside his office, the resignation of a senior air force commander, and open revolt within his own ruling party. Lawmakers report an "explosive" mood in parliament, with multiple sources confirming there are currently not enough votes to confirm the president’s preferred replacement, Ihor Klymenko.
The crisis risks further eroding Zelenskyy’s domestic authority at a critical moment, exposing deepening fractures in Ukraine’s wartime leadership.

- Asia closed lower with KOSPI underperforming -6.4%. EU indices -0.2% to -0.8%. US futures -0.1% to -0.4%. Gold -0.6%, DXY +0.0%; Commodity: Brent -1.2%, WTI -0.7%; Crypto: BTC -0.8%, ETH +0.4%.

Asia

- Bank of Korea (BOK) raised the 7-Day Repo Rate by 25bps to 2.75% (as expected) to move into tightening with its 1st rate hike since Jan 2023. Decision to hike by 25bps was unanimous.

- Australia July Consumer Inflation Expectation: 4.7% v 5.5% prior.

- Japan Fin Min Katayama reiterated stance to take appropriate action on FX anytime as needed. Understood that no change to GPIF's rules that it annually reviews its basic portfolio. Could not interfere or force pension funds on portfolio management. GPIF would review basic portfolio each year, assumption for this included potential growth that could see big turning point due to effect of Japan's growth strategy.

Global conflict/tensions

- President Trump said to be weighing an expansion of US military operations against Iran after reviewing new options with senior advisers,

Europe

- Incoming UK PM Burnham said to acknowledged possible tax increases as part of efforts to stabilize the UK's public finances.

Americas

- US Sec State Rubio: Lula's policies bad for Americans, Brazilians. Lula govt had not negotiated with the US in good faith.

Trade

USTR Greer stated that was moving quickly on 301 probes, which were on their own track; could take action fairly quickly, within the next couple of weeks. Still a lot of gaps between US, Brazil. US to exempt certain energy products from tariffs but to tariff ethanol at 25%.

Energy

- Shipping traffic through the Strait of Hormuz fell sharply in the aftermath of the US re-imposed its naval blockade on Iran.

- US Central Command said U.S. forces struck a tanker bound for Iran’s Kharg Island oil export hub.

- Analysts: Securing the Strait of Hormuz without Iran’s cooperation would likely require either a sustained naval escort mission or a large-scale ground operation in southern Iran.

- IEA Chief Birol stated that markets 'nervous' about renewed Iran conflict.

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [FTSE -0.36% at 10,478.25, DAX -0.41% at 24,915.91, CAC-40 -0.40% at 8,348.64, IBEX-35 -0.22% at 19,233.59, FTSE MIB -0.18% at 52,315.50, SMI -0.73% at 14,203.30, S&P 500 Futures -0.08%].

Market focal points/key themes: European shares traded flat in cautious early action on Thursday, as escalating US-Iran military tensions kept oil near one-month highs and injected existential-risk premium into sentiment, offsetting relief from softer-than-expected US PPI data that further dialed back Fed hike odds to just 10%. The STOXX 600 first held steady but then went into negative as major bourses like DAX, CAC, and FTSE 100 showed mild weakness, reflecting a market finely balanced between geopolitical anxiety and a cooling macro backdrop that supports patience from central banks. Attention is squarely on TSMC’s earnings later today as the ultimate bellwether for the durability of global tech and AI capex cycles, amid a European Q2 earnings season where headline profit growth of ~14.5% is almost entirely inflated by energy windfalls from the same Middle East shocks. Rotork surged 65% on its ABB takeover, while Ocado, Crest Nicholson, Partners Group and Frasers dropped sharply on results.

Equities

- Consumer discretionary: Ocado [OCDO.UK] -14.5% (earnings).

- Energy: TotalEnergies [TTE.FR] -2.0% (trading update).

- Industrials: ABB [ABBN.CH] -4.0% (acquisition; earnings), Rotork [ROR.UK] +67.0% (to be acquired by ABB), Experian [EXPN.UK] -3.5% (trading update).

- Technology: ASML [ASML.NL] -0.5% (TSMC outlook and investment plans).

- Materials: BHP Group [BHP.UK] -3.0% (production).

-Telecom: Publicis [PUB.FR] +2.0% (earnings).

Speakers

- SNB Summary of Jun Meeting (aka Minutes): Monetary conditions were appropriate. Inflation pressures were virtually unchanged and CPI should rise somewhat further in coming quarters. Increased willingness to intervene in FX if needed.

- Poland Central Bank's Zarzecki noted that the base case was stable rates till turn of year 2026; Likely that rates would rise in 2027.

- South Korea Financial Services Commission on leveraged ETF: To ban new single leveraged products from listing; To require retail investors to take additional courses on risks.

- Iran Army official reiterated stance that Strait of Hormuz to stay shut until US accepts Iranian law. If US attacks did not stop the war would spread to new arenas and would target all infrastructure in the region.

Currencies/fixed income

- USD consolidated some of its recent soft tone during a quiet EU session. Greenback hovering 4-week lows against most European majors as recent US inflation data eased which helped pare expectations for Fed rate hike calls.

- GBP/USD at 1.3535 as improved UK monthly GDP data raised the possibility of the BOE could hike interest rates in the coming months. Markets currently fully price in one quarter-point BOE rate increase in November.

- EUR/USD at 1.1470 with resistance seen around the 1.15 neighborhood.

- USD/JPY at 162.05 by mid-session.

- Bonds: 10-year German Bund yield last at 3.13%, France 10-year Oat at 3.93% and 10-year Gilt yield at 4.97% 10-year Treasury yield: 4.56%; 10-year JGB: 2.70%.

- Brent oil prices appeared to have stabilized around $85 per barrel, but prices of refined products continue to rise.

Economic data

- (SE) Sweden Jun PES Unemployment Rate: 3.6% v 3.4% prior.

- (NL) Netherlands Jun Unemployment Rate: 3.8% v 3.9% prior.

- (UK) May Monthly GDP M/M: 0.1% v 0.0%e; 3M/3M: 0.7% v 0.5%e.

- (UK) May Industrial Production M/M: -0.5% v -0.1%e; Y/Y: 1.0% v 1.3%e.

- (UK) May Manufacturing Production M/M:+0.1 % v -0.2%e; Y/Y: 2.3% v 2.0%e.

- (UK) May Index of Services M/M: 0.3% v 0.1%e; 3M/3M: 0.7% v 0.6%e.

- (UK) May Visible Trade Balance: -£18.7B v -£23.1Be; Overall Trade Balance: -£1.0B v -£5.5Be.

- (HU) Hungary May Average Gross Wages Y/Y:8.7 % v 8.7%e.

- (IT) Italy Jun Final CPI M/M: 0.0% v 0.0% prelim; Y/Y: 3.0% v 3.0% prelim.

- (IT) Italy Jun Final CPI EU Harmonized M/M: 0.0% v 0.1% prelim; Y/Y: 3.0% v 3.1% prelim; CPI Index (ex-tobacco): 102.8 v 102.8 prior.

- (TR) Turkey Jun Central Gov't Budget Balance (TRY): +114.2B v -298.2B prior.

- (IT) Italy May Total Trade Balance: €4.8B v €4.4B prior; Trade Balance EU: €0.9B v €0.4B prior.

- (EU) Euro Zone May Trade Balance: -€5.0B v +€2.8Be; Trade Balance NSA (unadj): -€7.8B v -€1.0B prior.

Fixed income issuance

- (ES) Spain Debt Agency (Tesoro) sold total €5.974B vs. €5.0-6.0B indicated range in 2029, 2033 and 2056 SPGB bonds.

- (FR) France Debt Agency (AFT) sold total €13.999B vs. €12.0-14.0B indicated range in 2029, 2031, 2032 and 2033 Bonds.

- UK DMO sold £4.25B in 4.875% July 2036 Gilts; Avg Yield: 5.040% v 4.858% prior; bid-to-cover: 3.13x v 3.46x prior; Tail: 0.1bps v 0.1bps prior.

Looking ahead

- 05:25 (EU) Daily ECB Liquidity Stats.

- 05:30 (HU) Hungary Debt Agency (AKK) to sell 12-month Bills.

- 05:40 (UK) BOE 7-day short-term repo operation (STR).

- 05:50 (FR) France Debt Agency (AFT) to sell €1.0-1.5B in inflation-linked 2032, 2040 and 2053 bonds (Oatei).

- 06:00 (IL) Israel Q1 Final GDP Annualized (3rd reading): No est v -3.8% advance.

- 08:00 (PL) Poland Jun CPI Core M/M: +0.2%e v -0.1% prior; Y/Y: 3.0%e v 3.1% prior.

- 08:00 (BR) Brazil May Retail Sales M/M: +0.6%e v -1.5% prior; Y/Y: 1.2%e v 1.0% prior.

- 08:00 (BR) Brazil May Broad Retail Sales M/M: +0.9%e v -0.7% prior; Y/Y: 1.2%e v 1.4% prior.

- 08:00 (UK) Daily Baltic Dry Bulk Index.

- 08:15 (CA) Canada Jun Annualized Housing Starts: 255.0Ke v 261.4K prior.

- 08:30 (US) Jun Advance Retail Sales M/M: 0.2%e v 0.9% prior; Retail Sales (ex-auto) M/M: -0.1%e v +0.8% prior; Retail Sales (ex-auto/gas): 0.4%e v 0.5% prior; Retail Sales (Control Group): 0.5%e v 0.7% prior.

- 08:30 (US) Initial Jobless Claims: 217Ke v 215K prior; Continuing Claims: 1.82Me v 1.814M prior.

- 08:30 (US) July Philadelphia Fed Business Outlook: 13.0e v 10.3 prior.

- 08:30 (US) July New York Fed Services Business Activity: No est v -10.1 prior.

- 08:30 (US) Weekly USDA Net Export Sales.

- 09:00 (RU) Russia Gold and Forex Reserve w/e July 14th: No est v $721.7B prior.

- 10:00 (US) July NAHB Housing Market Index: 35e v 35 prior.

- 10:00 (US) May Business Inventories: 0.3%e v 0.5% prior.

- 10:00 (US) Jun Pending Home Sales M/M: -0.5%e v +3.8% prior; Y/Y: No est v 2.1% prior.

- 10:30 (US) Weekly EIA Natural Gas Inventories.

- 11:30 (US) Treasury to sell 4-Week and 8-Week Bills.

- 12:00 (CA) Canada to sell 30 Year Bonds.

- 12:30 (US) Fed’s Logan.

- 13:25 (US) Fed’s Schmid.

- (AR) Argentina Jun Budget Balance (ARS): No est v 1.924T prior.

- 18:45 (NZ) New Zealand Jun Food Prices M/M: No est v 1.0% prior.

- 19:00 (US) Fed’s Jefferson.

- 20:30 (SG) Singapore Jun Non-oil Domestic Exports Y/Y: 28.7%e v 38.4% prior; Electronic Exports Y/Y: No est v 94.8% prior.

- 23:30 (JP) Japan to sell 3-Month Bills.