Key Highlights

• President Trump says Iran ceasefire “is over.”
• RBNZ raises rates by 25bp to 2.5%, warns of more hikes.
• Aggressive rotation benefits China, hurts South Korea.

Chart of the Day

Change in semiconductor (GICS 4530) holdings by region, YTD

^{Source: BNY}

South Korean equities had another poor session overnight, notching up heavy losses even before President Trump’s ceasefire comments. The broader APAC theme was one of rotation into safer assets after a large YTD build-up in semiconductor exposure. Relative to start-of-year holdings, semiconductor positions in APAC developed markets and emerging markets are up nearly 40 percentage points and 30 percentage points, respectively, versus their rolling 12-month averages, leaving the region vulnerable to short-term adjustment.

This is not just an Asia story, however. Developed EMEA semiconductor holdings are also up close to 30 percentage points from a low base, showing that Europe has participated more actively in the AI supply chain theme than headline narratives suggest. If global semiconductor leaders now face valuation pressure and investors rotate out of crowded AI exposure, defensive European names could benefit. The U.S. looks less stretched. Semiconductor holdings have risen more moderately this year, especially over the past quarter, as investors rotated out of high-cap U.S. tech and into Asia. U.S. tech will not be immune to the current adjustment, but the worst of the volatility may be found outside the U.S. for now.

What's Changed?

Markets are starting to look fragile. President Trump is now openly questioning the durability of the ceasefire, while exchanges of fire in the Strait of Hormuz are intensifying. For markets and the global economy, the prospect of a swift return to pre-conflict energy and goods flows through the waterway is fading. The immediate oil reaction has been significant, roughly 5%, depending on the benchmark, but not yet large enough to derail the improvement in inflation expectations. Still, our positioning data, from dollar exposure to flows into inflation-protected equity sectors, suggest core inflation hedges never really disappeared. Beyond the rhetoric and the real escalation in hostilities, a return to the March and early-April backdrop now looks highly unlikely.

At the same time, the Q2 risk recovery was sharp and concentrated, leaving a low bar for adjustment. The KOSPI had another poor session and is now down more than 23% from its mid-June highs. Rotation is becoming more relevant: flows are finding value in Chinese indices, even though a convincing China growth story remains difficult to build until clearer stimulus signals emerge from the upcoming Central Economic Work Meeting. A faster outflow cycle from major APAC funders would reinforce the dollar smile, but it does not have to trigger excessive volatility. U.S. equity holdings remain moderate relative to Asia’s “chip economies,” even in tech-linked sectors, and the Fed still has room to pivot if U.S. and global growth fail to find a replacement for the AI capex narrative.

The first FOMC minutes under Fed Chair Kevin Warsh are due out today, but the market focus is on structure rather than content. For policy watchers, the risk is that limited detail by design leaves the market with little guidance while the Fed establishes a new communications framework. Elsewhere, more fireworks are likely from multilateral and bilateral meetings between President Trump and heads of state or government at the NATO summit in Ankara. Oil will be the judge of whether this turns into a true escalation. Any accompanying move in yields or policy expectations will determine whether current positioning proves fragile, or resilient.

What You Need to Know

President Trump has said the tentative U.S. ceasefire with Iran is over, speaking at a NATO summit in Ankara after fresh U.S. strikes on Iran and the revocation of a waiver allowing Iranian oil sales. The move, which was prompted by attacks on ships in the Strait of Hormuz, raised tensions sharply and reignited energy market volatility, with oil prices surging again after earlier easing. Washington said negotiations toward a final deal would continue, but key issues remain unresolved, including transit fees in Hormuz, the unfreezing of Iranian assets and nuclear concerns. Trump said he still prefers a deal, though he threatened more strikes if talks fail. Brent +4.801% to 77.72, WTI +4.714% to 73.76, Omani crude +5.047% to 71.4, Dubai crude +3.532% to 67.434.

The U.S. Treasury Department has revoked its authorization for Iranian oil sales after fresh attacks on tankers in the Strait of Hormuz, escalating tensions over the key shipping lane. A U.S. official said Iran would only benefit if it showed good behavior and that its actions were unacceptable and would bring consequences. According to the Joint Maritime Information Center, a liquefied natural gas tanker, an oil supertanker and a third vessel were attacked in or near the strait, prompting a warning that the threat to shipping had risen to severe. The move ends a waiver granted under an interim deal last month, which had allowed Iranian crude imports and dollar payments to Tehran.

The RBNZ has hiked its OCR by 25bp to 2.50%, seeking to return inflation to the 2% target. The committee continues to expect that further removal of monetary stimulus may be required, although future policy decisions will be guided by incoming data, inflation dynamics and economic activity. It said the recent partial reopening of the Strait of Hormuz had lowered global oil and petrochemical prices, easing near-term inflation pressures, though the shock will continue to affect the outlook. It also noted that New Zealand’s recovery had been underway but lost momentum in the June quarter as the oil shock weighed on activity; growth is expected to recover in the September quarter as confidence improves. Inflation remains above target, and a degree of further reduction in monetary stimulus is likely needed. NZX 50 -0.71% to 13665, NZDUSD +0.458% to 0.5704, 10y NZGB +8.6bp to 4.512%.

S&P Dow Jones Indices has said Indonesia is now under review for possible market reclassification and may receive special treatment for its securities if conditions worsen. The index provider said it is monitoring stock ownership transparency in Indonesia and guidance from the Indonesia Stock Exchange aimed at addressing disclosure concerns and possible liquidity impacts. If the issues remain unresolved one calendar year after special measures are introduced, Indonesia could be moved from emerging to frontier market status. The move follows earlier warnings from MSCI over Indonesian stocks’ investability and potential downgrade risk. Concerns over free float have weighed on sentiment, as the country’s largest firms are often thinly traded and tightly controlled. The Jakarta Composite Index has been the world’s worst-performing equity benchmark this year. JCI -1.19% to 5915, USDIDR +0.095% to 17999, 10y IDGB +5.7bp to 7.246%.

Chinese authorities have reportedly held talks with top tech firms over the past month on curbing overseas access to China’s most advanced AI models, including some not yet released. The discussions, led by the Ministry of Commerce and attended by the National Development and Reform Commission, involved Alibaba, ByteDance and startup Z.ai. Officials considered limiting access to both closed-source and more open models, making leaks or theft of proprietary AI tech a national security offense, and tightening rules on funding domestic AI startups. The scope remains under discussion and may only apply to future models, with no timeline confirmed. The move highlights Beijing’s growing view of frontier AI as a strategic national asset, echoing U.S. concerns over the misuse of AI for military or intelligence purposes. CSI 300 -0.77% to 4756, USDCNY +0.05% to 6.7992, 10y CGB -0.3bp to 1.732%.

What we’re watching

The National Bank of Poland is expected to keep rates on hold at 3.75%.

FOMC meeting minutes are released.

U.S. May final wholesale inventories are forecast at 0.3% vs. 0.3% m/m. May wholesale trade sales are forecast at 0.8% vs. 2.0% m/m.

U.S. May consumer credit is forecast to ease to $17.5bn vs. $20.7bn.

U.S. Treasury sells $72bn in 17-week bills and $39bn in a 10y note reopening.

What iFlow is Showing Us

Mood: iFlow Mood has widened slightly to -0.068, suggesting that sentiment has moved closer to neutral.

FX: USD inflows continued to dominate, while CAD and GBP continue to experience substantial outflows. G10 currencies were otherwise slightly biased toward inflows, while the South Korean won has experienced outflows on a w/w basis.

FI: Globally, fixed income flows were fairly well-balanced, with U.K. government bonds seeing foreign demand while Swiss and Brazilian sovereign bonds faced selling pressure.

Equities: Global equities were generally biased toward modest inflows, with Danish and Hungarian equities continuing to experience inflows.

Quotes of the Day

“Peace is a fragile thing. It takes courage to secure it. It takes wisdom to maintain it.” – Jenny Shipley, former New Zealand prime minister.

“The fragile wants tranquility, the antifragile grows from disorder.” – Nassim Nicholas Taleb

Economic Details

U.K. labor market conditions showed a clearer shift toward temporary hiring in June. Temp billings rose at the fastest pace since April 2023, while permanent placements continued to fall but at the slowest rate in three months. The report suggests that geopolitical and economic uncertainty, along with cost concerns, kept firms cautious and limited longer-term recruitment. Demand for staff weakened further, led by a sharper decline in permanent vacancies. Meanwhile candidate availability rose strongly again, though less sharply than in prior months, partly due to redundancies. Pay trends improved, with starting salaries and wages rising more quickly as employers competed for scarce skills. FTSE 100 -1.32% to 10525, GBPUSD -0.083% to 1.3348, 10y gilt +9.4bp to 4.942%.

Swedish inflation softened in June, with preliminary CPI inflation easing to 0.7% y/y from 0.8% in May, while the m/m CPI increase was 0.4%. Statistics Sweden said the slowdown was mainly driven by lower food prices and transportation costs. The preliminary CPIF measure also softened, falling to 1.3% from 1.5% in May, with the monthly rise at 0.3%. CPIF excluding energy declined to 0.4% from 0.5%, and the m/m change was 0.6%. The definitive June publication is scheduled for July 15. OMX -1.66% to 3152, EURSEK +0.103% to 11.077, 10y Swedish GB +7.5bp to 2.869%.

Japan’s current account surplus widened to ¥3.97tn (+19.5%y/y) in May, from 3.91tn in April. Ministry of Finance data showed strong primary income support, which rose to ¥4.28tn from ¥4.21tn, while the goods and services balance was nearly flat at a ¥3.4bn deficit after a ¥20.3bn deficit in April. Within that, trade returned to a small surplus of ¥6.9bn versus ¥395.7bn previously, as exports fell to ¥9.36tn and imports eased to ¥9.35tn. Services remained in deficit at ¥10.3bn. Bank lending including trusts rose 5.7% y/y, unchanged from May’s 5.7% and up from 5.4% in April. Lending growth remained solid across the system. Total bank lending rose 6.3% y/y (6.2% in May), with major banks up 8.7% y/y (8.6% in May) and total regional banks up 4.3% y/y (4.2% in May). Total lending stood at ¥676.1tn. Nikkei -2.11% to 66819, USDJPY +0.179% to 162.39, 10y JGB +1.2bp to 2.871%.

South Korea’s balance of payments for May showed a record current account surplus of $38.61bn, up from $28.29bn in April. The goods account posted a $37.86bn surplus, as exports rose 62.9% y/y to $94.34bn and imports increased by 22.2% y/y to $56.48bn. Services recorded a $1.09bn deficit, reflecting shortfalls in other business services and manufacturing services. Primary income posted a $2.17bn surplus, supported by higher equity income, while secondary income was a $0.33bn deficit. Within the financial account, one notable observation was continued outbound equity investment flows at $7.6bn in May or $41bn YTD, against foreign equity outflows at -$31bn in May or -$74.6bn YTD. KOSPI -5.35% to 7247, USDKRW -0.41% to 1509.45, 10y KTB +1.2bp to 4.217%.

South Korea has said it will finalize and announce a won internationalization roadmap in July, seeking to expand use of the currency and advance foreign exchange and financial markets. Deputy Prime Minister Koo Yun-cheol said the move comes amid heightened volatility in domestic financial and FX markets, driven by expectations of global policy rate hikes, continued foreign capital outflows, a stronger U.S. dollar and a weaker yen. The government said 24-hour FX market opening should improve won transaction convenience, and will strengthen overnight monitoring to manage volatility. Officials also discussed reforming FX policy frameworks that have been in place since the 1997 crisis and making the won more “freely convertible” from its current status as a “restricted currency.” The ministry said market communication will be the job of the taskforce, while authorities will watch risks from stock market volatility and the economy’s growing dependence on semiconductors.

The Philippines Labor Force Survey showed the underemployment rate declining to 12.2% in May (13.1% in May 2025; 15.2% in April 2026), with 6.04 million people underemployed out of the 49.63 million in work. Labor force participation eased to 63.8% from 65.8% a year earlier, while the unemployment rate edged up to 4.8% from 4.7% in April and 3.9% in May 2025. Employment stood at 95.2% versus 96.1% in May 2025. Average weekly hours worked rose to 41.1. Services remained the dominant employer at 61.8%, led by wholesale and retail trade, agriculture and forestry, and construction. Labor conditions were weaker among young people, with the youth labor force participation rate at 32.3% and youth underemployment at 12.9%. PSEi +0.46% to 6276, USDPHP +0.116% to 61.505, 10y PHGB +2.3bp to 7.058%.