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Stocks soar in stellar quarter, dollar sinks gold, yen and other currencies
On Tuesday, global stocks were on track to achieve their best performance in the second quarter of six years. Meanwhile, a resurgent US dollar drove the yen down to its lowest level in four decades and?on course for a fourth consecutive quarterly increase. In the past three months the Strait of Hormuz reopened haphazardly and gradually as the hostilities between Iran and the U.S. waned, resulting in a fragile ceasefire that knocked 20% off of the price of crude oil. A dramatic shift has also occurred in the expectations of U.S. interest rate, against a backdrop that is dominated by a boom in artificial-intelligence stocks. The MSCI All-World Index has increased by almost 14% in the past three months to new highs, its best performance for the second quarter since 2020. The majority of gains are due to a fervent rally in everything AI-related. This is especially true in Asian markets where indexes from Japan, South Korea, and Taiwan have seen double-digit percentage increases. The S&P500 is up 14%, and the Nasdaq has gained 20%. Guy Miller, chief strategist at Zurich Insurance Group, said: "The theme that has disappeared is monetary support." The futures market had been pricing in further rate reductions at the start of the year. Now, that's changed. This is largely due to the current situation in Iran and the increased commodity prices. "We don't expect any further central bank cuts, but we also do not anticipate a new cycle of hikes." Europe's STOXX 600 index, which doesn't have as many AI beneficiaries than many Asian or U.S. indices, is up 0.65% and heading towards a quarterly gain of 10%. It has risen each month since March. U.S. stock futures rose 0.2%, indicating a modest rise at the opening bell. THE WINNING DOLLAR This quarter, the dollar was the biggest winner on the foreign exchange markets. It gained 1.4% against a basket major currencies. Investors are accumulating bullish positions in record numbers thanks to an astonishing re-pricing the U.S. rate outlook. The interest rate outlook has changed from one of cuts to increases, due to the surprising power of the U.S. economic and the persistent inflationary pressures that go beyond energy prices. The rise of the dollar has caused gold to fall to its biggest quarterly drop in over a decade. Meanwhile, the yen is at its weakest level in 40 years and traded around 162.23 per dollar on Monday. The yen's weakness in 40 years has caused traders to be on edge, and Finance Minister Satsukikatayama issued another warning. Kevin Warsh will address the European Central Bank annual meeting in Sintra, Portugal on Wednesday. Warsh's emphasis on inflation during his first meeting as Fed head earlier this month led traders to price in a rate increase by October. However, some economists think the economy is strong enough and the inflation obvious enough to suggest that an increase could be as early as July. Isabelle Mateos y Lago is the chief economist of BNP Paribas. "That's certainly not our case, but there's a good chance that they'll want to do it and get the issue out of their way." Before Warsh appears, on Tuesday, there are a number of European inflation data, the U.S. consumer sentiment data for June, and the JOLTS monthly hirings-and-firings report. The clock is ticking down to the U.S. jobs report due out Thursday. (Additional reporting from Dhara Ranasinghe and Tom Westbrook, both in London; editing by Muralikumar Anantharaman and Stephen Coates)
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Unexpectedly, German unemployment drops in June
Labor?office data showed on?Tuesday that the number of unemployed in Germany dropped unexpectedly?in June. According to a recent poll, analysts and economists predicted a rise of 7,000. The total adjusted number of unemployed people dropped to 2.984 millions, below the '3 million mark. In June, the seasonally adjusted unemployment rate remained at?6.3%. This is unchanged from previous months. In a recent statement, the head of the Labour Office, Andrea Nahles, said that there was little evidence of change on the labour market. The unemployment rate is only marginally decreasing, while the employment that is subject to Social Security contributions continues its downward trend. In June, the total number of?unemployed people was 2.94 million. This is a 15,000 decrease from the previous month. Economists have warned that an increase in unemployment is likely to occur in the next few months, as companies tend to 'delay staffing decisions as they react geopolitically such as with the Iran conflict. The labour office registered 648,000 job openings in total, which is 16,000 more than the previous year. Reporting by Friederike Hiene Editing by Miranda Murray, Linda Pasquini
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EU announces new steel import quotas in order to protect the industry from overcapacity
The European Commission announced quotas as part of a new system that limits duty-free steel imports to the European Union. This was done to protect the?steel sector and to increase capacity utilization to 80%. The EU's annual tariff free import quotas have been slashed from 18.3 million to 18 350,000 tonnes. A duty of 50% for steel products imported outside the quota has also been introduced. The remaining half of the import quotas is available to all trading partners including FTA partners. The commission said that many of these partners would receive country-specific quotas proportionate with their historical volumes. It said that "most of the EU FTA partners' market access will be reduced significantly less than the average 47% reduction foreseen by the Steel Regulation." The Commission stated that a "significant number" (or partners) have agreed to these allocations. The Commission emphasized that the rules were needed to protect the European industry against overcapacity and dumping elsewhere in the world. It said that "persistent global steel overcapacity remains a serious problem on the global stage and continues to distort international markets." The report added that the measure would "restore fairness to a market affected by distortions due to overcapacity." Reporting by Bart Meijer and Phil Blenkinsop; editing by Sudip K. Gupta
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British auto lobby group warns that post-Brexit regulations could cost the industry up to PS1.4 billion
The main British car lobby estimated that British electric vehicle manufacturers will have to pay PS1.4 billion ($1.85 billion) in tariffs, if the European Union does not reach a'solution' on the?local?content?requirements (also known as?rules of origin). In a press release, the Society of Motor Manufacturers and Traders said that the imposition of rules on sourcing parts will be delayed again in '2023 and now is due to come into effect 'from January. This will result in a 10% duty on 70% of battery -electric and plug in hybrid models sold?within the EU. This would reduce the competitiveness and affordability of many models, according to SMMT. Britain and 'the EU' are each other’s biggest market for exports EVs. These EVs are being marketed as a 'alternative fuel-powered vehicles that emit carbon dioxide, such as gasoline or diesel. The extension was made after some carmakers threatened to shut down their plants in Britain. (Reporting and editing by Thomas Derpinghaus; Muvija M. and Nick Carey)
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Shell anticipates a 65% increase in global LNG demand between 2050 and 2050
Shell's annual report said that the global liquefied gas demand is expected to increase by 65% by 2050. This will be driven by Asia, as they seek "lower-emission alternative" fuels than coal, and data centres are driving up power consumption. In its LNG Outlook 2026, the world’s largest trader in supercooled fuel predicted that global demand would reach 700 million metric tonnes per year by this date. The report said that the LNG trade was expected to grow in 2026 from 422 million tonnes in 2025. The Strait of Hormuz is currently experiencing severe disruption, which has caused around one-fifth of the global LNG supply to be cut since the Middle East conflict began. Shell stated that the global LNG trade could return to its previous level in 2026 if shipping in the Strait returns to normal in this summer. Then, in 2027 it will'return to growth,' Shell added. Cederic Crémers, Shell's President of Integrated Gas, stated in the report that the conflict had created a "system-wide shock" with disruptions affecting all sectors of the economy. However, the LNG industry was resilient and able?to adapt to changing market conditions. The company stated that recent growth in LNG supplies and regasification facilities had improved market resilience, and helped to limit the impact of "the disruption of shipping through Hormuz". The ramp-up of liquefaction plants in North America and improved performance at existing facilities, as well as slower Asian LNG imports, have helped to offset the reduced Middle East supply. The U.S. and Israeli war against Iran has disrupted global LNG outlooks, causing prices to rise, destroying Qatar's export infrastructure, and delaying new supplies, while casting doubt on the demand of price-sensitive Asian customers. Analysts predict that higher prices will curb South Asian demand. Buyers may switch to other LNG sources, or use coal and domestic gas. According to Kpler's data, Asian LNG imports in the first half 2026 were down by nearly 4% at 127.70 millions tons when compared to the same period last year. Shell reported that although Asian LNG spot prices were above $20 per million British Thermal Units at the height of the Middle East Crisis, they are still well below the levels of 2022 after Russia invaded Ukraine. This reflects a greater resilience on the LNG market. The Asian spot LNG price was last $15.35/mmBtu. This is a four-month low, as the market remains 'hopeful' about an end to the conflict. NEED FOR NEW INVESTMENTS By 2030, it is expected that 180 million tons of LNG will be available on the market. This will improve the affordability and availability of gas as well as open up new markets. South and Southeast Asia is expected to account for 40% of the global LNG imports in 2050, as countries look to lower-emissions alternatives to coal in order to meet a rapidly increasing energy demand. The report stated that data centres in more mature Asian markets, such as Japan are emerging?as a source of new power demand. Shell stated that LNG would continue to play an important role in ensuring the energy security of Europe and in balancing intermittent renewable energy generation, as domestic gas production declines. In order to meet the rising demand for LNG, it will be necessary to invest in new projects in the 2030s and 2040s. Around 200 million tons of LNG per year are needed, in addition projects that are already in construction. Cremers stated that, "While additional investment is required in both the supply and demand infrastructure, the outlook for the long term remains positive and LNG will remain a stabilising factor in the global energy systems."
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Volkswagen CEO targets power switch alongside deep cuts
Volkswagen CEO Oliver Blume’s plan to close up to 100,000 high-cost German plants and cut down on jobs is more than just a cost-saving measure. It could also be an attempt to change a corporate structure which has 'long held back changes. Sources say that Europe's largest automaker is considering its biggest-ever restructuring. This includes doubling the planned job cuts, and closing four German factories. It does this to combat tariffs, rising costs, and increasing competition from Asia. The company is also considering plans to separate passenger cars and parts into separate divisions. This could be a test of the limits of the Volkswagen Law, which enshrines the influence of workers and Lower Saxony as the second largest shareholder. The law limits the ability of management to close plants. The law only applies to VW AG, which controls six of the core German factories in the VW Group. But creating separate entities would allow a way to circumvent these restrictions. Three legal and financial sources have said that spinning off the passenger-car division -- which is heavily exposed to tariffs and weak European demand, as well as a price battle in China -- would be an important step. This would lead to a confrontation with powerful political and union stakeholders. The IG Metall has warned that Blume is in for a fight because the carve out plans are an "attack on VW law". Investors say that with the crisis in the industry, Volkswagen's share price nearing 16-year lows, and rising internal tensions, management has no choice but to change the status quo. Ulrich Hocker of shareholder lobby group DSW said that labour's influence is "excessive", and it has its roots in an old era. Volkswagen has a long history of failed compromises, with Lower Saxony and labour holding a majority in the supervisory board. He said: "At some stage, everyone will realise that major changes are needed to ensure this company's survival." SPINNING THE "BAD BANK" In practice, however any spin-off still requires shareholder approval of over 80%?under Volkswagen law. This effectively gives Lower Saxony – with 20% of the voting rights – a blocking stake. One of the sources stated that "Lower Saxony will never support a vote that would diminish its own power." UBS anticipates a deal, and warns that any restructuring will most likely be accompanied by provisions as well as a downward revision of Volkswagen's outlook for 2026. Olaf Lies is the Lower Saxony premier and a member of the supervisory 'board. He said that the state would not agree to measures which weaken the workers' influence, as this was "integral to Volkswagen's success". Blume, too, has floated the idea of shifting production from China to Germany in order to help?underused factories. Investors, including Porsche SE, have criticized Volkswagen's sprawling corporate structure. It spans 10 brands. The company could take a leaf out of Siemens’ playbook and streamline its empire in order to close the gap that has existed between its market value and what analysts attribute to its assets. Volkswagen's major stakes in Traton, a truck manufacturer, and Porsche, a sports car maker are worth more than 50 billion euros (EUR44 billion), which is the market value of the entire group. Citi analysts believe that carving out core operations could unlock value. They compare this move to creating a "bad-bank" which would isolate weaker businesses and leave behind a holding company with a smaller footprint, less vulnerable to geopolitics or weak growth.
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Tesla and BMW switch to aluminum from cheaper copper
Ferrari and BMW have introduced new models with lightweight, cost-effective aluminum wiring. This is accelerating the shift away from copper as the dominant material for electric wiring ever since the invention two centuries ago of the electric batteries. JPMorgan predicts that the decisions will affect around 2% global copper demand in this year. Tesla and Chinese EV makers have also made similar moves. The structural increase in copper prices could lead to even more copper being switched over to aluminium. This is due to the increased demand for data centres and green energy, as well as the shortage of copper. According to 18 interviews conducted with carmakers, cable and AC companies, metals manufacturers, and consultants, many sectors are moving to aluminium due to its lower price and comparable performance. Ferrari and BMW both said that they chose aluminium because it is lighter. Aluminium has been replacing copper in large waves for the past two decades. However, the record copper prices of late January, which peaked at close to $15,000 a metric ton added to the argument for aluminium. Forecasts for global demand and supply are not in line with each other for the next decade. LIGHTER and FASTER Ferrari, who already uses aluminum for its bodies and engines, has said it began using the lightweight metal as?power cables for its 296 hybrid sport car last year. Ferrari has now introduced aluminium wiring to other models including the Luce - its first ever EV, launched last month. Dario Esposito, Ferrari Communications executive, said that the move could save up to 20 percent of total wiring weight. He said, "We don't choose aluminium just because it is cheaper. We pick the material with better performance." The metal is actually much cheaper - currently around $3,100 per ton or about a quarter of the price for copper. BMW, a German automaker, said that it first began using aluminium conductors for its 1 Series subcompact in 2011, and gradually expanded the use of aluminum in hybrids and electric vehicles. It uses a lot of aluminium cable in the high-voltage and low-voltage system in its eDrive EV, which was launched 'last year. Stellantis - the fourth largest automaker in the world - has also started to replace copper wiring with aluminium recently, according a source familiar with this issue. Stellantis declined comment. Price versus Performance Feng Lu, sales director at JONVER, a Chinese supplier of EV parts, has reported that sales of aluminium wire products have risen this year from 20% to 30%. Norwegian aluminium manufacturer Hydro reported that sales of heating-and air tubing made from aluminium as a substitute for copper have been steadily increasing in recent years. Hydro's CFO Trond Olaf Christophersen stated that the company anticipates gaining market share in future years as aluminium replaces copper. Xavier Mathieu, a France-based Nexans employee, says that manufacturers will continue to buy copper because it is more efficient in certain applications, but they'll start purchasing aluminium once copper prices are 3.5 times higher. The price of copper is currently more than four times that of aluminum. The decision to switch is complicated by several factors, such as the high tariffs in the United States and the enormous amount of energy required to produce aluminum, resulting in more greenhouse gas emission. Aluminium is also cheap, but it's less efficient. It takes more aluminium to conduct a given amount of electricity. JPMorgan presented a scenario whereby 6% of the annual demand for "copper" could be replaced by aluminum in 2030. This compares to only 2% last year. CHINA EV MAKERS TAKE THE LEADER In a policy document dated March 2025, the government of the world's largest metals consumer, China encouraged companies to switch to aluminum. Many have taken the advice. By 2030, analysts at the consultancy 'Zhuochuang' predict that up to 25% of current copper components in the automotive, home appliance and power sectors could be made out of aluminium. AVATR, XPeng, and Xiaomi are among the Chinese EV manufacturers that have switched over to aluminium wire, according to Terry Woychowski of engineering consultancy Caresoft Global. The company disassembles vehicles and inspects components. Tesla and the three Chinese EV manufacturers did not respond when asked for comments. The lighter weight of?aluminum is particularly attractive to EV manufacturers because it allows for longer driving distances. Saving money is important for EV companies in China where a price war has squeezed margins. Aluminium has plenty of room to grow in the auto industry, where 85% electrical wiring busbars that connect an EV battery to its system are still copper. Woychowski said that the Chinese auto industry had benchmarked Tesla as a pioneer of using aluminium in wiring, when it launched its Model Y model in 2019 and, more recently, in its Cybertruck. (Reporting from Eric Onstad, Amy Lv, Ju-min Park, Kalea Hall, and Eric Onstad, London; Editing, Veronica Brown, Claudia Parsons).
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Asian stocks set to record-breaking quarter as dollar sinks gold, yen and yen
Asian stocks surged on Tuesday at the end of an impressive quarter, as a resurgent yen fell to its lowest level in four decades and headed towards a fourth consecutive quarterly increase. Japan's Nikkei rose 1.6% and is on track to set a new record for quarterly gains of over 38%. South Korea's KOSPI, which is dominated by chipmakers, rose 3%. However it was on track for a record-breaking second-quarter gain of more than 71%. It has already doubled in the past year. Brent crude futures are trading at $72.49 per barrel, which is the pre-war price. This is even with the current tensions in the interim ceasefire. "Now that oil prices are down, this reinforces our view of a more trend-like?growth?around?the world as compared to the sub-trend we thought about a few months ago. It also feeds into the better earnings stories," said Kerry Craig, strategist at J.P. Morgan Asset Management, in Melbourne. Wall Street indexes were up overnight, and futures in Asia were slightly higher. European futures rose 0.6% and were poised for a strong session start. Dollar is set to rise by a quarter thanks to the remarkable change in interest rate expectations for the United States. Economic strength and inflationary forces. Dollar's rise caused gold to fall at its highest quarterly rate in over a decade, while the yen reached a four-decade low of 162.41 per dollar in Asia trade. This set traders on edge regarding possible Japanese intervention. Satsuki Katayama, Japan's finance minister, said that authorities were ready to act at any moment. The dollar index has risen 1.3% in the last quarter. However, this week, the euro returned to the $1.14 chart. Next moves will likely be driven by U.S. employment data due on Thursday, as Friday is a holiday. Also, Kevin Warsh, the Federal Reserve chair, will appear on Wednesday. The Chinese manufacturing sector expanded in June, thanks to high-tech imports. Also scheduled for the session are European inflation and U.S. consumer sentiment and job openings. SELLING THE RECORD RALLY Taiwan's benchmark will rise by more than 46% this quarter, while other regions are unable to keep up with the semiconductor-driven markets. Hong Kong's Hang Seng was a notable laggard, as it struggled -- mostly flat -- on?Tuesday to a 7.5% drop in a quarter. The behavior of large investors during the record quarter was unusual. As the index weightings of Asia's major chipmakers increased, foreigners sold all the way to the top as they rebalanced their portfolios and worried about diversification. BNY reports that a net $17.3 billion in South Korean equity has been sold this year. Geoff Yu, BNY's macro-strategist, said that the gap between returns on investments and flows is part of a larger pattern in Asia's technology-heavy markets. Strong performance triggers rebalancing as well as profit-taking and not new institutional purchases. Investors are paying attention to the STOXX Index, which is expected to rise by 9% for the third quarter. The mainland China CSI300, which has risen about 10% in this period, also shows solid gains. Craig, of J.P. Morgan Asset Management, said that some investors are concerned about their tech exposure. "They're looking at other themes, such as renewables or defence, to diversify more in their portfolio." (Reporting and editing by Muralikumar Aantharaman, Stephen Coates, and Tom Westbrook)
Mike Dolan: ROI-BIS is not afraid to speak out against the AI bubble.
The world's central bank forum and watchdog have?warned investors against being swept up in this frenzy.
The Basel-based Bank for International Settlements, in its annual report on the?state of world finance? on Sunday did not doubt the AI buildout's scale -- but was concerned about the "hangover" when spending peaks.
As the U.S. and Israel war against?Iran continued to rumble in the background U.S. chipset stocks rallied by 75% in the second quarter of 2026, driven by another wave in capital expenditure forecasts coming from hyperscalers who are racing to build AI infrastructure. This has caused supply bottlenecks, chip shortages, and stoked supply bottlenecks.
This pushed the earnings growth estimate for 2026 in the United States to almost 25%. Forecast AI capital expenditure by the five largest hyperscalers will be approaching $1 trillion this year. Goldman Sachs estimates that the total cumulative amount could reach $7.6 trillion in 2031.
Anyone? For the umpteenth and final time, can anyone confirm that this is a bubble? One of the biggest investors in tech and cheerleaders of that sector says it's not true. SoftBank's Masayoshi son said only last week that thinking such thoughts would offend the gods.
Son: "It is blasphemy to call AI a bubble. "This is just the beginning." "The potential of AI will be unlocked."
He's probably going to say it, given that hundreds of billions are at stake.
Other investors are starting to realize, perhaps a little weary, that the explosion of?spending' and stock prices is not the bubble they feared.
Deutsche Bank's latest quarterly client survey revealed that the perceived bubble risk for the Magnificent Seven Megacap stocks has been the lowest since 2021.
However, for the U.S. technology sector as a whole, these risk perceptions remain as high as they were in the previous two years.
This divergence could explain why June, despite the fact that chipmakers had their best quarter ever, was the worst monthly performance for the Mag 7, since the group was formed three years ago.
As we approach the halfway mark, it is clear that a bearish capitulation has both positive and negative effects.
Share prices may reflect the reality of revenue for many chipmakers.
Micron Technology's stock has more than tripled since March. The revenue estimates are also up, but the 12-month price/earnings has remained virtually unchanged. It is now at eight times its previous level.
Even though a near tripling of the share price for Intel, which is still losing money, stands out as an anomaly, valuations at chipmakers like Broadcom and Qualcomm are historically limited.
AI EATS ITSELF
It is up to the BIS, a financial stability watchdog, to explain what can go wrong in the economy and markets. Maybe they will do the same as SoftBank's son.
The BIS report focused primarily on the risks of sustaining the pace of investments, which was compounded by the race between a small number of firms based on the belief that only those with superior technology would ultimately dominate the market.
The watchdog warned fierce competition may lead companies to invest too much in AI projects with uncertain returns, leaving the entire sector vulnerable if they fail to deliver.
It said that as competition drives capex higher, the sector's total payoff could shrink, or even turn into a negative scenario in adverse scenarios.
"Disappointment with returns could trigger a quick pullback in funding and turn the capex boom in a long-term investment bust. This could have knock-on effects to financial conditions."
The BIS also highlighted supply bottlenecks for power generation, grids of electricity and memory chips. They could also force companies to commit to longer-term contracts in order to secure limited supplies. This would expose them to excessive investment and make them more vulnerable to demand disappointments.
The report's most stern warning is reserved for the possibility that AI will eventually eat itself.
If AI is able to replace human intelligence and work, as its most ardent acolytes claim, then the risk is that income will be diverted away from workers into AI investments. If taken to an extreme, the workers' share of the national income may fall below zero and leave fewer people with purchasing power.
The BIS says that firms who are proactive will eventually stop investing if they anticipate a demand problem.
The demand for further capacity expansion is missing. "The demand bottleneck becomes a binding constraint."
Even if it's blasphemy, a lot of the money spent in this AI arms race still relies on faith.
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(source: Reuters)