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South Korea's efforts to expand the AI chip hub outside Seoul will be tested by power and water requirements
South Korea wants to build a new semiconductor hub in the southwest of its country within four years. However, local opposition due to its massive water and power needs will be one of its greatest obstacles. Honam semiconductor industrial complex, which is estimated to be worth at least 800 trillion won (540 billion dollars), is central to President Lee Jae Myung’s efforts to extend the AI chip boom outside the prosperous Seoul metropolitan region. Companies involved in the project like Samsung Electronics, however, will have to find new sources of energy to power it, with the goal of establishing it by the time Lee finishes his term in 2030. Analysts say that the power demand of the four planned chips fabrication plants could be 70% to 80% more than the current annual consumption of electricity in the southwestern regions Gwangju, North Jeolla, and South Jeolla. Local residents have said they are against plans to build new nuclear reactors or transmission lines, citing the flaws of previous energy infrastructure that they claim failed to win their approval. Residents claim they were not also consulted on plans to raise an existing dam in order to supply water to the project. Neal?Won is the principal analyst for S&P Global Energy. He said, "A large amount of power demand has been added to a region which had previously very little." Experts say that it will be difficult to operate the complex in its full capacity by 2030 without accelerated infrastructure growth. South Korea's Energy Ministry said that the southwest region has enough power to meet?local demands. If new chip fabs were located in the area, the majority of electricity would be produced locally, eliminating the need for long-distance transmission cables. It said that it would work with local governments to build the power infrastructure before fab operations, and improve public acceptability. This includes placing underground lines in densely-populated areas. Kim Sung-whan, the Energy Minister, has said that they could also consider building small modular reactors or new nuclear reactors. BOTTLENECKS FOR INFRASTRUCTURE The chip cluster project in Yongin near Seoul is a cautionary tale. Samsung Electronics, SK Hynix and other chip manufacturers have been working to expand their manufacturing capacity in the region. However, projects have faced delays due power and water problems. Mayor Lee Sang Il said SK Hynix’s first Yongin fabs were supposed to receive 265,000 metric tonnes of water a daily from a dam in another city. But opposition from the residents delayed the process for months. And supplies of power and water from other regions may face similar objections. He said that the responsibility for calming opposing voices and resolving differences rests with the central government. The government plans to assist Samsung and SK HYnix?to accelerate construction in Yongin. Roh Byeong Nam, a farmer in Yeonggwang County, southwest Korea, and co-chairman of the local anti-nuclear alliance, stated that residents would challenge any expansion or?expansion nuclear reactors if necessary through litigation. Roh stated that "to now talk about building new reactors on top of extending their lifespan is nothing less than declaring Yeonggwang as a nuclear test ground and ultimately a permanent?nuclear-waste site." Water supply is also complex. The environment ministry estimates that the cluster requires about 650,000 metric tonnes?of water per day. This is more than Gwangju’s daily residential water consumption. The developers hope to avoid building a large new dam by utilizing reclaimed water and five dam systems. They also plan to raise one of these systems - Dongbok Dam, to ensure an additional 250,000 tons per day. Kim Kwang Jin, the head of a group of dam-residents near Dongbok said that residents wanted to be consulted. Kim stated that the construction of a dam would be similar. He estimated that 1,500-1,600 households may be affected directly or indirectly. "They announced this unilaterally, without considering the resident's acceptance." The ministry of energy said that the dam-raising alternative would minimize environmental damage and relocation when compared to constructing a brand new dam. It will also continue discussions with Gwangju residents and the local government in order to avoid delays due either infrastructure or opposition.
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Oil prices drop as US-Iran strikes are offset by mediation efforts
Oil prices dipped on Tuesday as markets weighed reports of mediation attempts?between Iran and the U.S. versus an exchange of new?attacks?between both and threats of a Saudi Arabian naval blockade by Yemen's Houthis. Brent crude futures fell 35 cents or 0.4% to $88.87 a barrel at 0052 GMT. U.S. West Texas intermediate crude for September was unchanged at $82.47 a barrel. Both contracts were trading at levels below their highest in over a month, which they reached in the previous session. Houthis, who are allied with Iran in Yemen, announced?on Sunday that they would impose an naval blockade against Saudi Arabia. This could open a new front for the United States. In its war against Iran, the United States is now facing a new threat that could affect global energy supplies and international trade. Tim Waterer is the chief market analyst for KCM Trade. He said that the Houthis' threats of a blockade against Saudi Arabia are important because they raise the risk of disruption to another major oil exporter. Separately, an Iranian official said that Tehran received a mediator's proposal for a 10-day truce in order to salvage the interim agreement signed on June 17. The deal was intended to pave way for a long-term agreement to end "the war" that began February 28 when U.S. and Israeli attacks against Iran. The diplomatic move came after another night of U.S. attacks on Iranian cities, and attacks by Iran's Revolutionary Guards against U.S. military bases in the region. The U.S. Central Command announced that it would be launching another round of attacks on Iran later?on Monday. "(Oil has) come a long, way and it certainly has the potential to rise again. The overnight talk of peace and de-escalation appears to have capped the upside in the short term. Whether 'anything' comes out of those peace talks is yet to be seen, according to IG market analyst Anthony?Sycamore in a recent note. A preliminary poll on Monday showed that U.S. crude stockpiles fell last week along with gasoline while distillate inventories likely increased. (Reporting by Ishaan Arora in Bengaluru; Editing by Jacqueline Wong)
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As the AI rally cools, Indonesian stocks that have been beaten down feel the love.
Some investors are buying back the laggards as big investors start to sell and Indonesia's battered, unloved stock markets is gaining some love. Jakarta's stock market has been Asia's worst performing'major' stock market for this year. It is down by 28%. Investors have been looking at markets with less of a focus on AI. David Chao is the Asia-Pacific Global Market Strategist at Invesco, based in Singapore. He said: "We have been buying Indonesia and taking a profit in South Korea." "Indonesia remains the most overlooked macro-growth story." BARGAIN HUNTERS ARE SEEKING VALUE AS SENTIMENTS CHANGE Although still cautious, the sentiment is growing that it may not be as bad as it seems for Indonesian markets. This year there were more than $4 billion of foreign outflows due to MSCI transparency and fiscal concerns. Aninda M. Mitra, BNY Investments' head of Asia macro- and investment strategy, said: "I think a lot is already in the price on the equity side." Mitra stated that, despite the concerns about the pending MSCI decision, if the price multiples continue to fall and the rupiah stabilizes, "then there is a good case to make to begin adding selectively." Last month, Allan Gray, an asset manager, made his first investment in Indonesia, investing in Indofood Sukses Makmur - the holding company that owns the dominant instant noodle maker in the country. According to our estimates, INDF is trading at just over five times earnings. We believe this is a fair price for a consumer-facing, dominant business that generates cash. Investors also prefer banking and commodity firms, with Citi choosing Bank Central Asia, Vale Indonesia Alamtri Minerals, and Amman Mineral International. The Jakarta benchmark index has risen by more than 10% in July, while the tech-heavy indices have fallen sharply. This suggests that some investors may be starting to shift their focus into markets with lower returns. The rebound came despite the fact that there was little improvement to the concerns which sparked this year's selling, such as questions about Indonesia's fiscal policy and uncertainties surrounding MSCI's evaluation. MSCI NOVEMBER DEATHLINE THE NEXT CATALYST Indonesia retained its emerging markets status. Most analysts expect MSCI to confirm that classification in November, after it has extended its review to include a?review of the impact of reforms implemented by Jakarta regulators earlier this year. S&P helped calm investors' nerves by reaffirming Indonesia’s sovereign rating last week with a stable outlook. Citi said Indonesia was the most popular country in client meetings held by the bank earlier this month in Hong Kong and Thailand. Not everyone is convinced that an AI-driven rally cooling will provide a lasting support for Indonesian assets. Indonesia is not the only market that has recovered, as global investors have also returned to Indian and Chinese stocks. Investors have lost confidence in the welfare policies of President Prabowo Subito, as a result of fears about worsening fiscal conditions. The?rupiah has fallen nearly 8% so far this year and is at record lows. The fact that Iran is a net importer of oil has heightened concerns. Arthur Budaghyan is the chief emerging markets and China Strategist at BCA Research. The bar has been raised for these portfolios in order to allocate more capital and upgrade Indonesia. Even so, foreign investors have opted to retreat gradually rather than in a mass exodus. Copley Fund Research shows that more than half of the active fund managers they track remain overweight on Indonesia, even though the percentage of funds invested there has fallen to 80.45% - a 15 year low. The research firm stated that "the structural case for Indonesia" has not vanished. The Indonesian market is not overcrowded in either direction. It is arguably more expensive to be wrong about a recovery than it is to continue being patient. (Reporting and editing by Jacqueline Wong in Singapore, Ankur Banerjee)
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Stocks drop as oil prices rise; Iran tensions and earnings are in focus
Investors were cautious on Monday, as they awaited earnings from high-profile U.S. firms this week and developments in the U.S./Iran conflict. Oil prices ?gained. Yemen's Houthis, who are allied with Iran, said that they would impose an naval blockade against Saudi Arabia. The announcement came despite indications that Washington and Tehran want to resume diplomatic efforts to stop a spiraling attack. Brent crude futures rose by around 1.3%, settling at $89.22 per barrel. U.S. West Texas intermediate crude climbed 0.9%, settling at $83.23, after reaching its highest level in June at $85.39. Oil prices are generally a negative factor for stocks, as they raise costs for both consumers and businesses. This week, several major U.S. firms like Intel and Alphabet will report their earnings. Peter Cardillo is the chief market economist of Spartan Capital Securities, a New York-based brokerage. He said that earnings are beginning to flow and this will provide a cushion for markets. He also said that chipmaker shares had recovered some of the recent sharp losses. The semiconductor index rose 0.6% Monday, after closing Friday at a record low of?more? than 20% below its June late-closing high. This confirms that it is in a bear market. The Dow Jones Industrial Average dropped?30716 points or 0.59% to 51,839.26. The S&P 500 lost 14.41 points or 0.19% to 7,443.28. And the Nasdaq Composite was down 12.17 points or 0.05% to 25,508.07. The earnings season could reinforce or undermine this year's gains. This has been driven by an increase in AI capital expenditure, lifting semiconductor stocks and companies that have been seen as beneficiaries of the buildout. This season's show will give some insight into the AI trade, as well as chip makers, and provide more color about secondary effects of war. MSCI's global stock index fell by 3.23 points or 0.29 percent to 1,105.50. The pan-European STOXX 600 fell by 0.3%. U.S. Treasury rates rose as traders considered the impact of escalating oil prices due to the war in Iran. The U.S. economy is quiet this week, and Federal Reserve officials have a "blackout" period for public comments before the central bank meeting next Monday. The yield on the benchmark 10-year U.S. notes increased 5.68 basis points, to?4.598%. According to LSEG, the European Central Bank is holding a policy-setting meeting this week. Markets are pricing in a 13.1% probability of a rate hike. Andy Burnham, Britain's seventh prime minister since a decade, took over Keir starmer and the sterling fell 0.12% to 1.3437. He promised to reshape Britain's politics and introduce a "new economic model". The dollar index (which measures the greenback versus a basket currencies) rose 0.18%, to 100.92. Meanwhile, the euro fell 0.19%, to $1.1417. Gold spot fell by 0.24%, to $4,007.00 per ounce. (Reporting from Caroline Valetkevitch and Alun John, in New York; additional reporting from Wayne Cole, in Sydney; editing by Nick Zieminski & Stephen Coates).
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New York Army veteran taken into custody after fire outside ICE offices
Authorities say a man protesting Immigration and Customs Enforcement (ICE) was arrested on Monday, after he set off fireworks and ignited a fire on the steps leading to the ICE office in Lower Manhattan. The suspect was identified as Andrew Arrabaca a 43-year old U.S. Army Veteran living in Harlem. According to local news reports and authorities, on Monday morning a man appeared pour gasoline out of a bucket into the stairwells of 26 Federal Plaza. This office building also houses the FBI New York Field Office. He then lit it ablaze. Authorities said the suspect also ignited fireworks. He brought anti-ICE material. Department of Homeland Security announced on X, that a Federal Protective Service agent who detained the "anti-ICE rioter" was?injured. James Barnacle said that two other people had been?also lightly hurt,' at a press conference. Barnacle is the FBI assistant director for New York. Barnacle described the suspect as "an anti American, anti government extremist." James McDonald, Deputy U.S. attorney for the Southern District of New York said that an investigation is ongoing and charges have not yet been filed. Arrabaca was not available for comment and it is unclear whether he has a lawyer. Officials have confirmed that Arrabaca was in the Army between 2001 and 2005, where he worked on Patriot?missiles systems. Authorities said that investigators traced the suspect on Monday to his Harlem home. Officials say he was able to reach Midtown via subway on Sunday, and then spent the night on the streets of Lower Manhattan. What happened outside 26 Federal Plaza on this morning was disturbing. Zohran Mamdani, the mayor of New York City, told reporters that he was'relieved' no one had been seriously injured and that a suspect has been taken into custody. Reporting by Doina chiacu in Washington; David Dee Delgado in New York and Maria Tsvetkova, with editing by Michelle Nichols & Cynthia Osterman
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Trump tightens waiver rules for defense supply chains
President Donald Trump signed an executive directive on Monday that makes it more difficult for U.S. Defense contractors to get waivers to purchase critical minerals and materials from China or other banned foreign suppliers. This is the latest attempt by the Trump administration to reduce its reliance on overseas supply chain for weapons production. Defense contractors must now do more than just show that a Chinese supplier offers the cheapest or easiest option. Companies requesting a waiver must prove that they have looked for alternatives, disclosed the origins of materials and provided a plan on how to reduce their reliance on banned suppliers. Contractors who fail to comply with the new requirements may face consequences in the procurement process, such as the loss of contract opportunities. Peter Navarro told reporters at a press conference before the executive order's release that "we have tried everything and are out of options". After the news, shares of MP Materials, a company in which the Pentagon holds an estimated 15% stake, closed Monday 1% higher, at $45.70. PENTAGON PUSHES OVERHAUL OF SUPPLY CHAINS Pentagon is pushing defense contractors such as Lockheed Martin, Boeing and others to expand rapidly weapons production. They are also trying to identify and eliminate hidden vulnerabilities in the supply chain. Many minerals and processed materials that are used in advanced systems such as missiles, aircraft, and other advanced'systems' still depend on Chinese suppliers. This leaves companies trapped between the need to reduce their dependence on Beijing, and an urgent requirement to continue supplying weapons to U.S. troops and allies. China has gradually restricted access to essential minerals and leveraged supply chains. The Trump administration is "seeking" to 'pull back the curtain on the defense supply chain, which can span dozens of suppliers and reach the company that makes the final weapon. MAPPING INDUSTRIAL BASE The order directs the Pentagon's mapping of those lower levels of the industrial base. This will give officials a better view of where vital minerals, components, and other materials come from and if foreign-controlled suppliers can threaten weapons production in a conflict. This is not paperwork. "This is not paperwork," Navarro?said. He argued that the Pentagon must know if missile systems or other platforms are dependent on foreign-controlled providers before a war begins. Contractors are also required to evaluate suppliers' foreign ownership, financial vulnerabilities, and manufacturing risks. They must replace any suppliers who are deemed unreliable.
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Trump tightens waiver rules for the defense supply chain
The executive order signed by President Donald Trump Monday will make it more difficult for U.S. Defense contractors to obtain waivers that would allow them to purchase critical minerals and materials from China and other banned?foreign?suppliers. This is the latest effort of the Trump administration to reduce reliance on overseas supply chain for weapons production. Defense contractors will now have to prove much more than that Chinese suppliers are the cheapest or easiest option. Companies seeking a waiver must prove that they have searched for 'alternatives', explain the source of their materials and present a plan on how to get away from prohibited suppliers. Contractors who don't do enough to source locally will lose their contracts. "No more": "We tried nothing and are out of options", White House advisor Peter Navarro said to reporters during a press briefing held before the executive order's release. The Pentagon is pushing defense contractors such as Lockheed Martin and Boeing towards rapid expansion of weapons production, while still facing persistent vulnerabilities within the supply chains which feed the U.S. Military. Many of the critical minerals, processed materials, and advanced systems used in missiles and aircraft still depend on Chinese suppliers. This leaves companies trapped between the demands to move?away from Beijing and needing to keep weapons flowing into U.S. forces. The executive order also directs the Pentagon to develop rules requiring contractors to map critical supply chains from raw materials to finished military products. Companies will have to provide the source of components, minerals, software and other inputs that are used in certain weapons systems. This extends government visibility beyond prime contractors, to lower-tier providers. This is not paper work. "This is not paperwork," Navarro said. He argued that the Pentagon 'needs to be aware if missile systems -or other platforms- are dependent on foreign-controlled suppliers – before a war begins. Contractors are also required to evaluate suppliers' foreign ownership, financial vulnerabilities, and manufacturing risks. They must replace any suppliers who are deemed unreliable.
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Rate hike bets and US-Iran escalated oil prices have caused gold to fall.
Gold prices fell on Monday due to the escalating conflict between the U.S. and Iran. This also affected U.S. rates of interest. As of 2:50 pm EDT (1850 GMT), spot gold was down by 0.2%. U.S. Gold Futures for August Delivery settled at $4,015.90, down around 0.1%. The yields on the benchmark U.S. Treasury 10-year note increased by 0.4%. The U.S. Dollar was up by 0.2% making bullion more expensive for overseas buyers. Iran's Revolutionary Guards claimed they struck U.S. assets in the Middle East after another night of U.S. bombing of Iranian cities. Yemen's Iran aligned Houthis also declared a maritime blockade of Saudi Arabia. Brent crude oil prices are up after reaching a month-high, fueling inflation fears and stoking bets that interest rates will continue to rise. Gold is often seen as a hedge against inflation, but high interest rates tend to reduce the appeal of this non-yielding investment. David Meger is the director of metals at High Ridge Futures. He said that "higher energy prices are still in focus" as the escalation of tensions in the Middle East adds to the concern that the Fed's less than expected data on inflation last week may not be sufficient to prevent them from raising rates this year. Cleveland Fed President Beth Hammack has added her voice in a growing chorus that believes interest rates need to be raised to fight persistent inflation. This will set up a heated debate at the Fed’s next meeting, and could lead to disagreements during Kevin 'Warsh's 2nd meeting as the central bank chairman. According to CME FedWatch, traders now expect an interest rate increase in the U.S. by December. This is up from 73% last week. "We anticipate that the Fed won't raise rates until later in this year. We expect them to use balance sheet adjustments. Meger stated that we believe the realization of the situation?in the next month or two will actually add support to the gold market, and put pressure on the dollar. Other than that, silver spot gained 1.2%, to $56.55 an ounce. Platinum was up by 0.1%, at $1,592.86, while palladium rose by 0.9%, to $1,258,83. (Reporting and editing by Leroy Leo, Shailesh Kumar and Vedika Thorat in Bengaluru)
The most violent ceasefire in history.
Mike Dolan: What's important in U.S. markets and the global economy today? By Mike Dolan. Editor-at-Large for Finance & Markets. With the World Cup hoopla this weekend, many may have missed the fact that the Iran conflict has once again descended into full-blown warfare. As Tehran retaliated on U.S. bases and gulf shipping, Iranian attacks now have killed at least three U.S. troops. The traffic through the Strait of Hormuz is now a trickle. Brent crude has also risen above $90 a barrel for the first since early June.
All that and more will be discussed below. Listen to the Morning Bid podcast for the latest update on the energy crisis, the major moves in the chip stocks, and the changes both at?10 Downing Street and?11 Downing Street. Subscribe to the Morning Bid daily podcast and hear journalists discussing the latest news in finance and markets seven days a weeks.
The most violent ceasefire
It's not surprising that the June inflation report was received so poorly last week, given the recent increase in violence in the Middle East. The futures markets believes that there is a 2/3 chance the Fed will raise interest rates in September. Another big cloud is forming on the horizon due to shaky stocks. The South Korean market was closed on Friday but chip sales resumed today with the KOSPI dropping another 3%. Tokyo was closed on Friday, so the stock markets were quieter in the morning.
The U.S. Futures are slightly higher before the bell. This follows a tough few weeks for tech stocks. The high-flying U.S. chips stocks fell 10% last week, and 20% since their record highs of June. This suggests that the market is settling down from its AI frenzy. Now, it'll turn its attention to the hyperscalers that will report their earnings this week and in the coming weeks. Alphabet will report on Wednesday. Intel, Tesla, and other companies are also reporting this week. China's Moonshot AI programme, which is the latest AI innovation from the country, offers a glimpse into how the second-largest economy in the world keeps up with the rapid technological transformation. On Monday, Andy Burnham will become the new UK Prime Minister. The market is likely to be interested in the cabinet picks he makes and his choice of finance ministry, with Shabana Mahmood being a conservative candidate for Home Secretary.
Chart of the Day Crude oil prices briefly surged back above $90 a barrel on Monday, for the first since early June. The Iran war was raging after the ninth day in a row that the U.S. attacked Iran. Prices dropped below this level after Iran's Foreign Ministry said that negotiations with the U.S. can be pursued on the basis of national interests.
Gulf shipping through the Strait of Hormuz is now at a crawl. Fuel prices are rising across the board. Average retail U.S. gasoline prices are now above $4 per gallon.
Watch today's events
Canada's June Inflation Report and the U.S. Leading Economic Index
Andy Burnham, leader of the Labour Party, officially takes over as Prime Minister in the UK
* ?U.S. Earnings reports from Domino's Pizza Steel Dynamics, and WR Berkley
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(source: Reuters)