Key Highlights

• OPEC+ members agree another quota increase, exerting further pressure on oil prices.
• APAC tech stocks fall amid news of Nvidia rack system production delay.
• U.K.’s FCA warns regulators are in an “arms race” to keep pace with AI.

Chart of the Day

Chinese equities holdings’ gap widens further vs. EM APAC peers

^{Source: BNY}

Chinese markets performed slightly better than APAC peers overnight, as pressure on the tech narrative weighed more heavily on crowded South Korean and Taiwanese exposures. That relative resilience matters because cross-border ownership of Chinese assets is already unusually weak. The holdings gap between Chinese equities and these peers is now at its widest YTD. Client positioning in Chinese equities has fallen below 0.9% of total global equity holdings, around one-fifth of South Korea and Taiwan’s combined share, despite China’s far larger role in the global economy. Bond ownership reinforces the same point: CGB holdings have deteriorated sharply since the start of the year, while corporate debt appears close to capitulation as weak fundamentals and low yields continue to drive outflows.

CNY is also the worst-held APAC currency, yet flows are no longer showing aggressive selling. China has effectively been de-risked across equities, FX and fixed income. The fundamental case is not yet clean: data, earnings and policy follow-through still need to improve. But the positioning setup is becoming more compelling. Retail equity flows are offsetting institutional sales, ownership appears to have found a base and stimulus talk is rising. If fundamentals stabilize or credible policy support emerges, even a modest rebuild in exposure to China could create a meaningful re-entry opportunity from very depressed ownership levels.

What's Changed?

The hangover isn’t from the celebrations; it’s from returning to the market’s biggest unanswered question. As the U.S. returns from its 250th anniversary weekend and Europe from another successful weekend on the soccer pitch, oil prices are continuing to fall and the inflation outlook is continuing to improve. OPEC+ has agreed another 188,000 bpd production increase for August, extending the gradual normalization of supply and maintaining the downward pressure on crude prices. If sustained, lower energy prices will remove one of the key macro headwinds for risk assets and reinforce the view that the next move by major central banks is more likely to be toward easier policy than renewed tightening. That still leaves the bigger question of what will drive the next leg of global growth and equity returns.

Asian equities provided an early reminder that lower oil alone is unlikely to be enough. Tech stocks led losses on reports of delays to a next-generation AI server platform, but the market’s reaction was more telling. As further chipmaker share sales loom and the AI narrative enters a more demanding phase, the bar for success is rising while tolerance of disappointment is falling.

Today’s focus shifts to the U.S. ISM Services survey. The market-friendly outcome would be a rebound in the employment component without a meaningful pickup in the prices paid index. At present, the survey points in the opposite direction: the employment index has remained in contraction territory for three consecutive months, while the prices paid component is sitting at its highest level in four years. A more benign outcome would reinforce the markets’ case for further scaling back expectations of additional Fed tightening, in that it would signal stronger hiring without a further increase in price pressures. Anything less is likely to reinforce doubts over whether the AI investment boom is feeding through to the broader economy, and the hangover will continue.

What You Need to Know

Asian tech stocks have slumped after a report that Nvidia’s next-generation AI server rack system has been delayed by more than a year because of manufacturing difficulties. The report said setbacks in printed circuit board construction have raised uncertainty around Nvidia’s next-generation scale-out roadmap and widened the competitive window for alternative AI platforms. Shares of related suppliers fell sharply, including listings in Hong Kong, Taiwan, South Korea and Japan. The move came after a strong run in AI-linked stocks, with investors now taking profits and reacting sensitively to any negative signals. Our flow data point to ongoing struggles for retail investors seeking to hold onto positioning as institutional investors continue their retreat from the region. KOSPI -0.46% to 8051, USDKRW +0.144% to 1532.3, 10y KTB +1bp to 4.195%.

OPEC+ has ratified a planned oil quota increase after major members led by Saudi Arabia and Russia agreed to raise next month’s output target by 188,000 barrels/day. The move continues a phased unwinding of production curbs introduced a few years ago and lifts the total quota increase since the war began to 940,000 barrels/day, or close to 1% of global demand. The decision comes as Gulf exporters restore shipments after an interim peace pact, while Brent has fallen sharply from war highs to close to $72/barrel. The alliance now faces pressure over unity, market share and the risk of a future global supply glut. Brent -0.93% to 71.45, WTI -0.816% to 68.13, Omani crude -0.531% to 63.81, Dubai crude -1.888% to 64.505.

Former top Japanese currency official Tatsuo Yamasaki has said the yen appears undervalued by as much as 20% and should be closer to 130 per dollar, arguing that the weakness now reflects changed market expectations more than fundamentals. He said the slide toward a four-decade low of around 162.84 has likely reached a climax, with further downside limited by a probable BoJ rate hike and only uncertain additional tightening from the Federal Reserve. He also warned that traders holding short yen positions could be punished by intervention, saying the finance ministry has moved beyond verbal warnings and is willing to act. Yamasaki downplayed concerns that Prime Minister Sanae Takaichi’s policies are worsening Japan’s fiscal outlook. Nikkei -0.01% to 69738, USDJPY +0.564% to 162.25, 10y JGB +4.1bp to 2.827%.

The U.K. Financial Conduct Authority has warned that regulators are in an arms race to keep pace with artificial intelligence in financial services, as a senior FCA executive said millions of consumers are already using AI tools for personal finance decisions. In a report due to be published on Monday, the FCA said AI could improve access to advice and lower costs, but also raises risks including bias, opaque pricing, manipulation, fraud and cyber-attacks. It recommended a review within three to six months of whether AI models such as ChatGPT, Claude and Gemini should fall within regulation and called for stronger FCA powers over major technology providers and AI-driven financial activities. FTSE 100 +0.46% to 10728, GBPUSD -0.083% to 1.3339, 10y gilt -0.8bp to 4.774%.

Cuban official Raúl Guillermo Rodríguez Castro has said he would negotiate with President Trump if designated, positioning Raúl Castro’s grandson as a potential informal bridge between Havana and Washington at a time of deep economic strain, fuel shortages and renewed U.S. pressure. He said he would not abandon the principles of the Cuban Revolution, underscoring limits to any opening. The broader event is a possible shift in U.S./Cuba engagement, though doubts remain over whether he has formal authority. A report in USA Today reported that Rodríguez Castro has become a powerful figure behind the scenes in Cuba, despite holding no formal government role. The story highlights tension between his privileged lifestyle and Cuba’s hardship, while also pointing to his influence over security, investment discussions and state-linked business interests.

What we’re watching

The Bank of Israel is expected to cut rates by 25bp to 3.50%.

U.S. June ISM Services Index is forecast to ease to 54.2 vs. 54.5. Prices paid are forecast to ease to 70.1 vs. 71.3. New orders are forecast to rise to 57.5 vs. 57.3. Employment is forecast to rise to 48.1 vs. 47.9.

Canada June S&P Global Services PMI, 50.6 prior.

BoC Overall Business Outlook Survey, -0.4 prior. Future sales, 25.0 prior.

Central bank speakers: The Fed’s Christopher Waller, the ECB’s Isabel Schnabel and Pierre Wunsch and the Riksbank’s Anna Seim speak in Rome. The ECB’s Philip Lane speaks on challenges for monetary policy transmission in a changing world. BoE rate-setter Catherine Mann speaks on a panel about the future of U.K. economic data.

U.S. Treasury sells 13-week and 26-week bills.

What iFlow is Showing Us

Mood: The risk tone has deteriorated further. iFlow Mood narrowed to -0.719 as core government bond selling accelerated while global equity outflows remained persistent.

FX: G10 dominated the tape. Strong USD demand came at the expense of heavy CAD and GBP selling, with EUR also under pressure. Flows across APAC, EMEA and LatAm were otherwise light and mixed.

FI: U.S. Treasurys saw sizable cross-border outflows, while Brazilian government bonds led EM selling. Buyers rotated into U.K. gilts and Malaysian and Canadian government bonds.

Equities: Mixed beneath the surface. Australia, Denmark and Hungary attracted fresh inflows, while selling was concentrated in the U.S. and South Korea, with additional outflows from the U.K. and Peru.

Quotes of the Day

“Safety and certainty in oil lie in variety and variety alone.” – Winston Churchill

“Oil has meant mastery through the years.” – Daniel Yergin

Economic Details

Germany’s new manufacturing orders rose 1.9% m/m in real terms in May, after a revised 3.2% decline in April. Excluding large orders, orders increased by 1.0% m/m. Over the March-May period, total orders were down 0.2% from the prior three months; excluding large orders they were up 4.1%. The gain in May was led by other transport equipment, up 85.0%, while machinery and electrical equipment also supported the result. Automotives and computer, electronic and optical products weighed on the figures. Manufacturing sales also improved, rising 1.8% m/m and 4.2% y/y. DAX +0.43% to 25890, EURUSD -0.158% to 1.1419, 10y Bund -1.5bp to 2.92%.

Swiss unemployment data for June showed mixed labor market conditions. The unemployment count fell by 2,524 m/m to 137,751, while the unemployment rate declined to 2.9%, but unemployment was still 8.6% higher than a year earlier. Seasonally adjusted unemployment rose to 147,087, and the adjusted rate held at 3.1%. Youth unemployment edged up, while unemployment among people aged 50-64 fell m/m but remained up y/y. Registered jobseekers increased slightly to 225,791, vacancies rose in headline terms and short-time working affected 9,961 people in March, down sharply from February. SMI +0.03% to 14428, EURCHF +0.068% to 0.91954, 10y Swiss GB -0.3bp to 0.333%.

Hungarian industrial production fell by 0.4% y/y in raw terms in May, while working-day-adjusted output rose by 5.4% because there were two fewer working days than in May 2025. On a seasonally adjusted, working-day-adjusted basis, industrial production increased by 2.3% vs. April. Output decreased y/y in most manufacturing subsections, with gains in transport equipment and computer, electronic and optical products partly offset by weakness in electrical equipment and food, beverages and tobacco. Over the first five months of 2026, industrial production was 0.7% higher than in the same period of 2025. Budapest SI -0.08% to 142951, EURHUF -0.054% to 353.23, 10y HGB -1bp to 5%.

Australia’s Melbourne Institute inflation gauge fell 0.4% m/m in June, led by lower fuel prices. The drop follows a 0.3% decline in May, marking a second consecutive month of price weakness. The y/y rate slowed to 3.9% from 4.4%, while the trimmed mean measure fell 0.5% m/m after dropping 0.1% previously, taking its y/y pace down to 2.8% from 3.6%. The snapshot points to broader easing in both headline and underlying price pressure, suggesting disinflation is becoming more established. That could force the RBA to shift away from its neutral stance, with market pricing of 35bp of tightening by year-end now looking increasingly vulnerable if softer inflation momentum persists. ASX +0.45% to 5762, AUDUSD -0.116% to 0.6932, 10y ACGB -1bp to 4.786%.

Thai consumer price inflation for June came in at 2.42% y/y, with the CPI at 102.85. Higher domestic fuel prices linked to Middle East tensions and retail fuel restructuring drove up transport and public fare costs, while broadly higher prepared food prices added to living costs. Core inflation rose to 1.23% y/y from 0.92% in May. On a m/m basis, CPI fell 0.34% as fuel, hotel rates and domestic airfares decreased. Food and non-alcoholic beverage prices increased by 1.03% y/y, led by prepared meals and rice products, while meat and fresh vegetables fell. The ministry kept its annual inflation forecast at 1.5-2.5%. SET +0.24% to 1615, USDTHB +0.568% to 33.323, 10y TGN -1.6bp to 2.009%.

Singapore retail sales growth slowed in May, easing to 3% y/y, with total sales at SG$4.5bn. The result was weaker than April’s 5.4% rise and below market expectations. Excluding motor vehicles, sales rose 3.7%, which was also softer than the previous month. The slowdown was driven by weaker food and beverage retail, department stores, and food and alcohol sales, while food and beverage services were broadly flat. By contrast, recreational items, fuel stations, watches and jewelry, and computer and telecommunications equipment all posted solid gains. On a seasonally adjusted basis, retail sales fell 2.3% m/m, reversing April’s increase. STI +0.21% to 5255, USDSGD +0.124% to 1.2933, 10y SGB +4bp to 2.134%.