The Daily: Oil Selloff Can't Save Semis

MACRO - What’s Driving Overnight Risk?

Overnight Price Action

• Asia: Sharply lower; MSCI Asia Pacific fell as much as 3.6% to the lowest since May, South Korea’s KOSPI plunged 11%, and SK Hynix plus Samsung both dropped 13% as the semiconductor rout deepened
• Europe: Futures flat; traders are balancing the global chip selloff against lower oil and easing Treasury yields
• U.S.: Futures lower; Nasdaq contracts are down around 1% as AI-chip pressure, China competition, and Nvidia-linked headlines weigh on semis
• Rates: Treasury yields are lower across maturities; 2Y and 10Y rates both moved down, though Fed funds futures still price a 36% chance of a hike this week
• FX: The U.S. Dollar is flat against the G10 majors as lower yields offset Fed-event risk
• Commodities: Oil is lower again; WTI and Brent are both down at least 1%, gasoline is off 0.8%, natural gas is down 0.9%, gold is lower by 0.7%, and silver is down 1.8%

Catalysts

• A global semiconductor selloff deepened after a report said a Chinese state-backed company began mass-producing immersion deep ultraviolet lithography machines.
• ASML slid to its lowest level since early June as traders repriced the risk of domestic Chinese lithography competition.
• Taiwanese prosecutors detained an Nvidia employee as part of a probe into alleged AI-chip smuggling into China.
• Recent detentions have also included Super Micro Computer employees, though prosecutors have not accused Nvidia, Super Micro, or other companies of wrongdoing.
• China said the U.S. committed to cap replacement tariffs at 20% and warned Washington against sanctioning Chinese AI companies.
• Beijing said it would take “all necessary measures” if the U.S. sanctioned Chinese firms over alleged improper use of American models to train local rivals.
• Trump said the U.S. and Iran are engaged in diplomatic talks to end the war, though Iran’s Foreign Ministry said formal negotiations are not taking place.
• The U.S. held off attacking Iran for a third straight day, while Trump warned fighting would resume if no deal is reached.
• Iranian and Omani negotiators are trying to reopen shipping through Hormuz, with one proposal focused on the strait’s middle passage.
• WTI is tracking down almost 11% this week, erasing roughly half of the prior three-week rally of 39.5%.

Stat of the Day: Yesterday was the highest volume day on record for SMH.

Market Implication

The market has a cleaner energy setup and a worse semiconductor setup. Lower crude, lower product prices, lower yields, and a flat Dollar should help risk. The problem is that AI leadership is breaking again. China’s lithography progress hits ASML. The Nvidia smuggling probe adds headline risk around export controls. Beijing’s warning on AI sanctions raises the policy temperature. The Fed starts today with a 36% hike probability, so lower oil helps, but it does not fully remove the policy risk.

THEMATIC - Forces Behind the Tape

1. Semis are Trading Like a Policy Shock

The chip selloff is no longer just a valuation reset. It is turning into a policy, competition, and export-control trade. A report that a Chinese state-backed company has started mass producing immersion deep ultraviolet lithography machines hit ASML hard and pushed the shares to the lowest level since early June. DUV is not the same as leading-edge EUV, but it is still a key part of the chipmaking stack. Domestic Chinese progress changes how investors price scarcity, sanctions, and long-term margins.

The equity reaction is ugly. MSCI Asia Pacific fell as much as 3.6%. KOSPI dropped 11%. SK Hynix and Samsung both fell 13%. Nasdaq futures are lower because the same question is now hitting every AI hardware name: how much of the current demand curve survives export controls, China substitution, supplier inflation, and policy retaliation? The ongoing debate is how much investors should pay for AI hardware when the supply chain is becoming less predictable (and perhaps less profitable).

2. Oil is Helping Again, But Hormuz Still Needs a Real Fix

Crude is moving in the right direction for equities. WTI and Brent are both down nearly 2% today, gasoline is off 0.8%, and natural gas is down 0.9%. WTI is now down almost 11% this week after a 39.5% rally across the prior three weeks. That takes pressure off inflation expectations, transports, airlines, consumer cyclicals, and the long end of the bond market. Trump said diplomatic talks are underway to end the war. Iran’s Foreign Ministry said formal talks are not currently happening, so the messaging is still messy. The market is focused less on the press language and more on the fact that strikes have paused.

Hormuz is the practical test. Iranian and Omani officials met in Tehran over the weekend, and negotiators are trying to restart shipping through the strait. One proposal would reopen the middle passage. Omani officials are reportedly optimistic that progress can be announced in the next few days. Either way, lower oil helps the macro tape immediately. A real Hormuz framework would help it more. If talks fail and Trump’s warning about resumed fighting becomes the next headline, crude can recover quickly, especially if VLCC traffic remains low.

3. Earnings Breadth is Holding While Leadership Narrows

The earnings tape is better than the index reaction. UPS beat with Q2 revenue of $22.83B and adjusted EPS of $1.76, then raised full-year guidance. Coca-Cola reported comparable revenue of $13.37B, raised its 2026 organic revenue outlook, and lifted comparable EPS growth guidance. PayPal beat with adjusted EPS of $1.38 and total payment volume of $486.4B. Those are useful reads across transport, staples, pricing power, payments, and consumer activity.

The leadership problem is concentrated in AI hardware. ASML is lower. Samsung and SK Hynix are getting hit. Nvidia is under headline pressure. China is warning Washington on tariffs and AI sanctions. Qualcomm is preparing double-digit price hikes tied to supplier costs. Microsoft and Meta report Wednesday, Apple and Amazon follow Thursday, and investors need a better answer on AI payback. The market can rotate into companies with cleaner earnings and less China-chip exposure. It has a harder time building a full index rally if semis keep acting like the center of geopolitical risk.

MICRO - This Week’s Catalysts

Economic Calendar (CT)

• 9:00 - Consumer Confidence
• Tuesday - Fed meeting begins
• Wednesday - FOMC Decision, Warsh press conference
• Thursday - Advance Q2 GDP, June PCE Price Index, Weekly Jobless Claims, BOE policy decision
• Friday - Employment Cost Index, BOJ policy decision

TRENDING – Reddit Retail Radar

KEY LEVELS TO WATCH

• S&P 500 (/ESU6) – Support/Resistance: 7411/7470
• Nasdaq 100 (/NQU6) – Support/Resistance: 27261/28354
• Crude Oil (/CLQ6) – Support/Resistance: 79.80/84.39
• U.S. 10Y Yield – 4.632%, Thursday was highest since January 2025
• VIX – 18.89 pre-market, 14.96-20.31 range for July

Trade Setup Bias

Tactical and selective. Lower oil and lower yields help the macro setup, but the semiconductor selloff keeps the index setup fragile. I would be careful chasing Nasdaq strength before Microsoft and Meta. The better read-throughs are in earnings breadth: UPS for transport and restructuring, Coca-Cola for pricing power, PayPal for payments, and the banks for capital-markets strength. Semis need defined risk until China lithography, export controls, Nvidia headline risk, and AI sanctions threats settle down. If Brent stays below $90 and the 2Y stays contained, cyclicals and small caps can keep working underneath tech weakness.

Bottom Line

Tuesday is no longer just an oil-relief tape. Crude is down again, product prices are lower, yields are softer, and the Fed has a little more room before Wednesday. The immediate issue is that AI leadership is cracking at the same time. China’s lithography progress hit ASML, Taiwan’s chip-smuggling probe pulled Nvidia into the headlines, and Beijing is warning Washington against AI sanctions. Earnings breadth is still good, but the market needs Microsoft and Meta to stop the semiconductor damage from becoming index damage. The tape can hold if Hormuz progress becomes real, Brent stays below $90, and Big Tech gives investors AI growth without another cash-flow or policy scare.

Christopher Vecchio, CFA, tastylive’s head of futures and forex, has been trading for over 20 years. He has consulted with multinational firms on FX hedging and lectured at Duke Law School on FX derivatives. Vecchio searches for high-convexity opportunities at the crossroads of macroeconomics and global politics. He hosts Futures Power Hour Monday-Friday and Let Me Explain on Tuesdays, and co-hosts Overtime, Monday-Thursday. @cvecchiofx