Kospi circuit breaker and China DUV that looks to threaten ASML moat

EU mid-market update: Kospi circuit breaker and China DUV that looks to threaten ASML moat; SK Hynix reports tomorrow; Earnings overall in focus ahead of Fed decision tomorrow.

Notes/observations

- Asian tech was hammered overnight, Kospi -10% (Kosdaq sidecar triggered), led by SK Hynix -13%. Drivers: renewed AI-spending and "circularity" concerns after an FT report that Nvidia is behind an undisclosed $50B Texas data-centre lease using its own chips, plus reports China has begun mass-producing domestic DUV lithography tools via Shanghai's Aishengna. Tools remain far from ASML parity but shift China risk toward a longer-term servicing/qualification story for SMIC, Hua Hong and CXMT. European chip names tracked lower (ASML -1.9%, Infineon -2.3%) and Nasdaq futures point ~0.9% down. Korea's FSC clampdown on single-stock leveraged ETFs added pressure; Hynix Q2 tomorrow is the next catalyst.

- A heavy European morning skewed positive on guidance. Safran raised FY26 across the board on record H1 profitability; Orange and Barclays both beat and lifted FY26 guidance (though Barclays traded lower); Unilever jumped ~6% on its best volume quarter in over a decade and an upgraded outlook. Mercedes-Benz beat on adjusted EBIT but trimmed revenue guidance; Air Liquide and Michelin were softer, and Philips fell over 10% as analysts pinned its beat on a tariff refund and flagged weak orders. LVMH edged higher, with Citi calling a potential inflection point.

- Oil extended its selloff, WTI -2% as Middle East tensions tentatively ease - Trump sees a "good chance" of an Iran deal (while warning strikes could resume). Oman has floated a Malacca-style voluntary-fee mechanism for the Strait of Hormuz, sidestepping mandatory tolls that could lift freight costs. Australia is exploring its first new large-scale refinery since the 1960s.

- Tier1 analysts see a possible Fed rate hike tomorrow as highly unlikely yet not fully ruled out, since futures price only ~40% odds and history shows the Fed has never hiked with under 60% priced in since 1994 - making any July move unprecedented. Such a surprise would pull forward 2026 hikes and likely give incoming Chair Warsh immediate inflation-fighting credibility and independence. No modern Fed Chair has dissented on an FOMC policy vote (the sole historical exception being Marriner Eccles in the late 1930s), so a Chair-led minority vote for a hike would be virtually unprecedented and signal deep internal division. Markets are watching this week’s expected 10-2 split closely: more than three dissents could flag rising support for a September hike, even as some investors still expect rates to stay on hold over the next year.

- More press reports that China’s little-known state-backed firm Aishengna is consolidating talent from SMEE and Huawei-linked Yuliangsheng to build immersion DUV scanners, with first units expected to reach SMIC, Hua Hong and CXMT in 2026. Its planned output of roughly five tools this year and 20 in 2027 remains tiny next to ASML’s ~130-unit capacity and will not match the Dutch systems on overlay, throughput or uptime. The real strategic aim is likely not immediate node parity but creating a domestically serviceable tool that can keep mature-node and multipatterned production alive if export controls extend to spares, software and field support.

- Trade friction is escalating: USTR Greer flagged possible further tariffs from the excess-capacity probe, US customs is inspecting China-linked factories in Vietnam, MOFCOM warned of retaliation, and German officials are reportedly mapping Chinese vulnerabilities for a potential EU trade war.

- Japan's PM Takaichi may order the food tax cut as soon as Thursday, while FinMin Katayama walked back GPIF reallocation talk and stressed BoJ independence.

-Wednesday's Fed decision sees ~66% hold priced in, 34% chance of hike of 25bps hike.

- Also note the FAA's proposed directive on 737 MAX seat installations and a 7.1-magnitude earthquake warning for Japan's southwest region; earthquake centered in Kumamoto triggered evacuation at TSMC’s JASM fab after intensity reached the required threshold. The site, which began volume production in late 2024 and serves automotive, industrial, image-sensor and consumer demand (with Sony and Denso as key customers), faces potential short-term disruption whose financial impact hinges on post-quake inspections and tool recovery. While the second fab under construction is planned for advanced nodes, even a brief halt could delay ramp efficiency and customer qualification more than current revenue.

- Asia closed lower with KOSPI underperforming -10.8%. EU indices +0.2-0.5%. US futures -0.7% to +0.2%. Gold -0.9%, DXY 0.0%; Commodity: Brent -2.7%, WTI -2.5%; Crypto: BTC -2.8%, ETH -4.2%.

Asia

- South Korea July Consumer Confidence: 106.8 v 106.6 prior.

- Australia ANZ Roy Morgan Weekly Consumer Confidence Index: 71.2 v 75.6 prior.

- South Korea to implement basic deposit requirements on ETFs from July 31st, 2026.

- RBA Gov Bullock noted that Board was prepared to act as required to achieve its mandate, including by increasing the cash rate further if needed.

- Japan Fin Min Katayama noted that foreign banks' participation in projects under Japan's $550B US investment scheme wiped out concerns about dollar funding.

- Japan PM Takaichi to give consumption tax order as soon as Thursday ( 23rd July).

Global conflict/tensions

- Trump administration officials believe economic pressure might ultimately inflict more damage on Iran than the recent bombing campaign.

Europe

- UK July BRC Shop Price Index Y/Y: 0.9% v 1.1%e; Food prices: 2.2% v 2.4% prior [6th straight decline].

- Swiss National Bank (SNB) reportedly set to keep interest rate at zero until end of 2027.

Trade

- USTR Greer noted that tariffs had no impact at all [on interest rates]; tariff rates are pretty similar to past tariffs. The 10% and 12.5% tariff rates are broadly in line with recent global tariff measures and should not materially influence the Federal Reserve’s policy decisions this week.

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [FTSE +0.48% at 10,833.20, DAX +0.24% at 25,486.04, CAC-40 +0.35% at 8,435.85, IBEX-35 +0.52% at 19,843.97, FTSE MIB +0.21% at 52,162.00, SMI +0.34% at 14,470.60, S&P 500 Futures -0.09%].

Market focal points/key themes: European equities posted modest gains on Tuesday as a string of resilient earnings from consumer staples, industrials and selected cyclicals outweighed persistent inflation and rate anxieties ahead of the Federal Reserve’s potential hike or hold tomorrow. LVMH trade slightly lower after earnings, Unilever’s sharp rise on better-than-expected volume-driven sales growth, Orange’s upgraded profit and cash-flow guidance, Mercedes-Benz’s strong quarterly profit (despite a lowered full-year volume outlook) and Safran’s raised targets after record margins provided the main lift, helping the STOXX 600 edge higher while the DAX and CAC 40 advanced and the FTSE 100 held steady. The results highlighted a clear bifurcation in the European earnings season: defensive staples, specialised aerospace and certain industrial names continue to demonstrate pricing power and operational resilience, whereas high-end luxury, healthcare technology and some banks faced pressure, with Philips tumbling despite beating earnings expectations. Overall sentiment stayed restrained by sticky sovereign yields, hawkish ECB rhetoric signalling possible further tightening, and investor focus shifting to the Fed meeting for clues on the global monetary-policy path.

Equities

- Consumer discretionary: LVMH [MC.FR] -1.0% (earnings), Philips [PHIA.NL] -10.5% (earnings).

- Consumer staples: Unilever [UNA.NL] +6.5% (earnings).

- Financials: Barclays [BARC.UK] -4.5% (earnings).

- Industrials: Mercedes-Benz [MBG.DE] +2.5% (earnings), Safran [SAF.FR] +2.5% (earnings).

- Technology: ASML [ASML.NL] -1.0% (sell-off in Asia tech names after yesterday's report on China DUV advancements; Aishengna's DUV machine is expected to require further testing and remains far from matching ASML's competing models).

- Materials: Air Liquide [AI.FR] -3.0% (earnings).

-Telecom: Orange [ORA.FR] +3.0% (earnings).

Speakers

- China Commerce Ministry (MOFCOM) official Lin Weilong stated that China to expand imports with more practical actions. Added that China would not gain advantage through currency devaluation.

- Iran Foreign Min said to have held calls with Saudi and Oman counterparts on Strait of Hormuz security.

- Oman said to have presented to Iran proposal for joint regional mechanism to manage Strait of Hormuz with voluntary fees.

Currencies

- USD kept a form tone ahead of Wed FOMC rate decision. Markets now see approx. a 40% change that the Fed could pull the trigger and tighten its post with a rate hike. USD strength maintained even as falling oil prices eased some concerns over inflation. Markets were pricing in over an 80% chance of a hike at the September meeting.

- EUR/USD at 1.1370 by mid-session as traders trimmed back expectations of ECB rate hike bets. Oil process were lower as US and Iran were engaged in talks in an attempt to bring the conflict to an end. This help alleviate some inflation concerns.

- USD/JPY at 163.75. Dealers noted of concerns that the Japanese govt spending would keep weighing on sentiment as the Takaichi government had not shown the source of funding for the planned tax cuts.

- Lower oil continued to help to move bond yields lower. 10-year German Bund yield last at 3.11%, France 10-year Oat at 3.90% and 10-year Gilt yield at 4.96’ 10-year Treasury yield: 4.61%; 10-year JGB: 2.75%.

Economic data

- (FI) Finland Jun House Price Index M/M: -0.7% v -0.2% prior; Y/Y: -3.9% v -3.2% prior.

- (SE) Sweden Jun Trade Balance (SEK): 2.6B v 2.1B prior.

- (DK) Denmark Jun Retail Sales M/M: 0.5% v 1.0% prior; Y/Y: 4.8% v 3.7% prior.

- (FR) France July Consumer Confidence: 86 v 85e.

- (ES) Spain Q2 Unemployment Rate: 9.9% v 10.1%e.

- (ES) Spain Jun Adjusted Retail Sales Y/Y: 0.5% v 1.3% prior; Retail Sales (unadj) Y/Y: +2.4% v -0.3% prior.

- (ZA) South Africa May Leading Indicator: 118.2 v 118.6 prior.

Fixed income issuance

- (NL) Netherlands Debt Agency (DSTA) sold €2.985B vs. €2.0-3.0B indicated range in 2.75% July 2036 DSL Bonds.

- (UK) DMO sold £750M in 0.125% Jan 2028 Gilts via tender; Avg Yield: 4.090% v 3.989% prior; bid-to-cover: 5.35x v 4.97x prior.

- (IT) Italy Debt Agency (Tesoro) sold total €2.25B vs. €2.0-2.25B indicated range in 2028 BTP bonds.

- (IT) Italy Debt Agency (Tesoro) sold €3.0B vs. €2.5-3.0B in new 2.00% Feb 2037 I/L Bonds (BTPei).

- (AT) Austria Debt Agency (AFFA) sold total €1.585B vs. €2.0B indicated in 3-month and 6-month bills.

- (CH) Switzerland sold CHF376.9M in 3-month Bills.

Looking ahead

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

- 05:30 (HU) Hungary Debt Agency (AKK) to sell 3-Month Bills.

- 05:30 (ZA) South Africa to sell combined ZAR2.55B in 2037, 2038 and 2040 bonds.

- 05:30 (EU) ECB allotment in 7-Day Main Refinancing Tender (MRO).

- 05:40 (UK) BOE allotment in 6-month GBP-enhanced liquidity repo operation (ILTR).

- 06:00 (FR) France Q2 Total Jobseekers: No est v 3.295M prior.

- 06:00 (IE) Ireland Jun Retail Sales Volume M/M: No est v 0.0% prior; Y/Y: No est v 0.8% prior.

- 06:00 (EU) ECB allotment in 3-month LTRO.

- 06:30 (IN) India Jun Industrial Production Y/Y: 5.9%e v 5.1% prior.

- 06:30 (UK) DMO to sell £750M in 4.25% 2040 Gilts via tender.

- 07:00 (BR) Brazil July FGV Construction Costs M/M: 0.6%e v 0.9% prior.

- 07:30 (BR) Brazil Jun Current Account Balance: -$2.3Be v -$3.2B prior; Foreign Direct Investment: $5.6Be v $8.0B prior.

- 08:00 (BR) Brazil mid-July IBGE Inflation IPCA-15 M/M: 0.2%e v 0.4% prior; Y/Y: 4.7%e v 4.8% prior.

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

- 08:15 (US) ADP Preliminary Employment Change for 4-weeks ending July 11th: No est v +16.5K prior.

- 08:30 (US) Jun Advance Goods Trade Balance: -$100.0Be v -$105.9B prior (revised from -$105.8B); Exports M/M: No est v -5.4% prior (revised from -5.4%); Imports M/M: No est v 4.0% prior (revised from 3.6%).

- 08:30 (US) Jun Preliminary Wholesale Inventories M/M: 0.5%e v 0.1% prior; Retail Inventories M/M: 0.4%e v 0.6% prior.

- 08:55 (US) Weekly Redbook LFL Sales data.

- 09:00 (US) May FHFA House Price Index M/M: +0.1%e v -0.1% prior.

- 09:00 (US) May S&P Cotality House Price Index (20-City) M/M: 0.00%e v -0.04% prior; Y/Y: 1.30%e v 1.14% prior; House Price Index (overall) Y/Y: 1.00%e v 0.85% prior.

- 10:00 (US) July Richmond Fed Manufacturing Index: 5e v 4 prior.

- 10:00 (US) July Consumer Confidence: 92.1e v 91.2 prior.

- 10:30 (US) July Dallas Fed Services Activity: No est v 2.9 prior.

- 10:30 (CA) Canada to sell 3-month, 6-month and 12-month bills.

- 11:30 (US) Treasury to sell 6-Week Bills.

- 13:00 (US) Treasury to sell 7-Year Notes.

- 16:30 (US) Weekly API Crude Oil Inventories.

- 18:00 (CL) Chile Central Bank (BCCh) Interest Rate Decision: Expected to leave Overnight Rate Target unchanged at 4.50%.

- 21:30 (AU) Australia Jun CPI M/M: +0.2%e v -0.7% prior; Y/Y: 4.0%e v 4.0% prior.

- 21:30 (AU) Australia Jun CPI Trimmed Mean M/M: 0.3%e v 0.4% prior; Y/Y: 3.7%e v 3.6% prior.

- 21:30 (AU) Australia Q2 CPI Q/Q: 0.7%e v 1.4% prior.

- 21:30 (AU) Australia Q2 CPI Trimmed Mean Q/Q: 0.9%e v 0.8% prior; Y/Y: 3.7%e v 3.5% prior.

- 22:00 (KR) South Korea Jun Retail Sales Y/Y: No est v 9.0% prior.