US stock index futures are showing a mixed performance ahead of Thursday's trading session on July 16th. As of the latest update, Dow Jones futures are up 0.17%, while S&P 500 futures have declined 0.26% and Nasdaq futures have dropped 0.93%.

In European markets, Germany's DAX index is down 0.90%, the UK's FTSE 100 has fallen 0.19%, France's CAC 40 has declined 0.83%, and the Euro Stoxx 50 is down 0.56%.

Commodity prices are also mixed, with WTI crude oil up 0.18% at $79.74 per barrel, while Brent crude has edged down 0.08% to $84.88 per barrel.

Market Overview

Extreme optimism may be acting as a constraint on the market. Despite the arrival of a seemingly perfect 'Goldilocks' economic scenario, US stocks are struggling to gain further momentum. Bullish investors have become so enamored with the favorable conditions, and risk appetite has been pushed to such extreme highs, that the source of the next leg up for the market is becoming increasingly difficult to identify.

Richard Privorotsky, a partner at Goldman Sachs Group, commented, "The sustainability of the stock market rally ultimately depends on corporate earnings guidance and positioning levels, not just headlines. Energy remains a key macro risk factor, but for now, the inflation environment is improving."

Privorotsky noted that this earnings season is likely to deliver solid results, with the banking sector having largely cleared its performance hurdles, and ASML Holding NV's report indicating healthy demand for semiconductor capital expenditures. "As with most AI-related stocks, the question is no longer just about the data, but whether it is impressive enough relative to current positioning," he added.

A Bank of America fund manager survey released this week shows professional investors' cash holdings have dropped to very low levels, while the bank's 'Bull & Bear Indicator' is also flashing a warning signal. Furthermore, data from Deutsche Bank indicates that systematic strategies are currently positioned extremely bullishly, leaving little room for further incremental buying. Trend-following CTAs have pushed their equity exposure to the upper end of the historical range, at the 72nd percentile, while volatility-controlled fund positioning is even more extreme, at the 91st percentile.

Central Bank Policy Shift

The Bank of Korea has raised interest rates for the first time in three and a half years, marking a policy pivot driven by the AI chip boom and the official start of a tightening cycle. On July 16th, the central bank increased its policy rate by 25 basis points from 2.50% to 2.75%, in line with market expectations. This move formally ends a cycle of four consecutive rate cuts that began in late 2024 and initiates a new period of monetary tightening.

The root of this hike lies in a structural economic transformation driven by artificial intelligence. Economic growth has far exceeded expectations, with the South Korean government significantly raising its 2026 GDP growth forecast on July 14th from 2.0% to 3.0%. If achieved, this would be the fastest growth rate since 2021. Nominal GDP growth is projected at 12.3%, the highest in 30 years since 1996. The International Monetary Fund had previously raised its 2026 growth forecast for South Korea to 2.6%, the largest upward revision among 30 major economies.

The Bank of Korea explicitly stated that this chip cycle is fundamentally different from previous ones. In a report to parliament, the central bank noted that the current expansion cycle, which began in March 2023, has now lasted 40 months, far exceeding the historical average of 29 months for the five expansion cycles between 2000 and 2020. The core driver is competitive investment by global tech firms to adapt to the AI industry ecosystem transformation, rather than traditional cyclical demand.

Regulatory Intervention in South Korea

South Korean authorities have unveiled a package of measures to cool down the market, including raising margin requirements and halting the listing of new single-stock leveraged ETFs. The country will temporarily suspend new listings of leveraged exchange-traded funds tied to individual stocks to curb market volatility. This follows a surge in popularity of funds linked to Samsung Electronics and SK Hynix, which caused significant market swings.

The Financial Services Commission announced in a statement on Thursday that the ban will remain in place until market conditions stabilize. Regulators will also raise the minimum margin requirement for trading leveraged ETFs from 10 million won to 30 million won (approximately $20,300), with the change expected to take effect on August 5th.

These measures represent the most comprehensive effort yet by South Korean officials to calm a retail trading frenzy that has turned the $4.1 trillion stock market into one of the world's hottest and most volatile. The rules were announced after a meeting involving regulators, finance ministry officials, and the central bank governor, amid growing concerns that leveraged ETFs tied to Samsung and SK Hynix were causing excessive market turbulence.

Global Energy Warning

The head of the International Energy Agency has issued a warning with a timeline of 'weeks,' stating that the global economy will face a new shock if the Strait of Hormuz remains closed. IEA Executive Director Fatih Birol issued a stark warning at the Aspen Security Forum in Colorado on Wednesday, stating that the global economy could face serious challenges again if disruptions to shipping through the Strait of Hormuz are not resolved within weeks.

Birol noted that escalating US-Iran tensions have left markets "nervous" and facing "great uncertainty," severely threatening the transit of crude oil, fertilizers, natural gas, and other goods through this critical waterway. "If the Strait of Hormuz continues to be closed, the global economy, including the economies of the Middle East, developing countries, and Asia, could face some difficulties again," Birol emphasized, adding that the window to resolve the crisis is "not months, but weeks," and the strait must be "fully open, unconditionally open."

Japan's Policy and Pension Fund Outlook

Following signals last week about promoting domestic investment, Japan's finance minister stated that economic growth could support the GPIF in reassessing its asset allocation. Japanese Finance Minister Tsuyoshi Katayama delivered key remarks in parliament on Thursday. She stated that the government's current policy shift is significantly raising Japan's potential economic growth rate, and this positive change will provide a strong rationale for the Government Pension Investment Fund (GPIF) to adjust its asset allocation and increase holdings of domestic assets in its future annual reviews.

Katayama pointed out that the GPIF, as the world's largest public pension fund, appropriately reviews its portfolio each fiscal year based on changes in macroeconomic assumptions. She particularly emphasized that as government policy places a major focus on expanding investment, the Japanese economy is reaching a critical structural turning point, and the upward revision of the potential growth rate should naturally be a core factor for the GPIF to reconsider its allocation between domestic and foreign assets.

Key Corporate Updates

The 'buy the rumor, sell the news' pattern is playing out again. Taiwan Semiconductor Manufacturing (TSM) reported a 77% surge in Q2 net profit to a new record high, yet its stock price tumbled nearly 5%. Benefiting from robust global demand for AI chips, TSMC on Thursday reported second-quarter profit that far exceeded expectations. Data showed Q2 revenue of NT$1.27 trillion ($39.45 billion), a 36% year-over-year increase, beating the market expectation of NT$1.264 trillion. Net profit was NT$706.562 billion, a 77.4% increase year-over-year and 23.4% higher sequentially, surpassing the market forecast of NT$632.64 billion.

The net profit of the world's largest contract chipmaker set a record high for the fifth consecutive quarter. This performance was primarily driven by explosive growth in global AI infrastructure demand, fueling strong orders for advanced processes and packaging technologies. TSMC stated that advanced process technologies (7-nanometer and below) accounted for 77% of total wafer revenue.

TSMC now expects capital expenditure for 2026 to reach $60 to $64 billion, up from a prior forecast of $52 to $56 billion. The company also anticipates its revenue growth rate in US dollar terms will be slightly above 40%, higher than the previous forecast of over 30%. However, following the earnings release, TSMC's stock fell nearly 5% in pre-market trading, as some investors opted to take profits after the positive news.

Eli Lilly and Company (LLY) is making a major $3.8 billion move into the psychedelics space, acquiring AtaiBeckley Inc. (ATAI) at a 26% premium. Lilly has agreed to acquire AtaiBeckley for up to $3.8 billion, highlighting the growing interest of large pharmaceutical companies in the once-fringe field of psychedelic medicine. Lilly will pay $6.75 per share in cash, with the potential for an additional $2.50 per share if certain drug development milestones are met. The base price represents a 26% premium to AtaiBeckley's closing price on Wednesday.

Japan aims to build a 'national robot team' and plans to purchase 27,500 NVIDIA (NVDA) Rubin GPUs, signaling the AI computing supercycle is moving from the cloud to 'physical AI.' An alliance formed by the Japanese government and major corporations—specifically the newly established company Noetra Corp—plans to purchase 27,500 next-generation AI GPUs from NVIDIA. The plan involves building a massive AI computing infrastructure cluster through large-scale procurement of NVIDIA's cutting-edge Rubin architecture AI GPUs. This infrastructure is intended to accelerate the development of a foundational AI model for robots in Japan and to foster a large, government-led and policy-supported robot cluster involving top companies.

The AI boom is fueling demand for lithography machines. ASML Holding NV is looking to raise prices, but Taiwan Semiconductor Manufacturing is saying 'no.' According to media reports citing informed sources, ASML plans to raise prices for its chipmaking equipment, a move that could create friction with its largest customer, TSMC. The report states that TSMC has expressed opposition to the Dutch equipment maker's planned price increases.

It is reported that ASML recently discussed raising prices for its extreme ultraviolet (EUV) lithography systems with TSMC. Furthermore, ASML has informed some customers in recent weeks of its plan to increase prices for its deep ultraviolet (DUV) lithography systems by 10%. However, TSMC has previously stated that ASML's most advanced High-NA EUV lithography machines, costing over €350 million (approximately $410 million) each, are too expensive for mass production, though TSMC currently uses them for research and development purposes.

Hardware and services are seeing successive price hikes. Apple Inc. (AAPL) is raising the monthly subscription price for AppleCare+ by 50 cents. Apple has slightly increased the cost of AppleCare+ service subscriptions, marking another round of price adjustments by the company amid a global chip shortage and multiple industry pressures. Monthly AppleCare+ plans for Mac and iPad have increased by 50 cents, while annual plan prices have risen by $5. The increase applies only to new subscribers, with existing users maintaining their original pricing.

This adjustment continues the tech giant's trend of ongoing price increases. Last month, Apple raised prices for iPads, Macs, the Vision Pro headset, HomePod smart speakers, and TV set-top boxes. The market expects Apple to also implement price increases for its most profitable iPhone product line when it unveils new models in September.

A 28% premium 'hostile bid'! Stripe and private equity firm Advent International have made a $53.4 billion all-cash offer to acquire PayPal Holdings Inc. (PYPL). It has been confirmed that digital payments giant Stripe and private equity firm Advent International have jointly submitted a takeover proposal to PayPal, valuing the transaction at approximately $53.4 billion.

According to people familiar with the matter, the bidders proposed acquiring the payments company for $60.50 per share in cash. These sources indicated that Stripe, Advent, and Block Inc. together are providing $17 billion in equity financing for the offer. People familiar with the situation said PayPal's board could meet as early as July 20th to discuss the proposal. The offer, submitted earlier this month, includes approximately $50 billion in committed bank loan financing and represents a roughly 28% premium to PayPal's closing price on Tuesday.

UnitedHealth Group Incorporated (UNH) has significantly raised its full-year guidance, with better-than-expected earnings signaling a recovery. UnitedHealth raised its full-year outlook and reported quarterly profit that far exceeded Wall Street expectations, helping to solidify the company's earnings recovery following a historic slump.

Earnings showed Q2 revenue of $112 billion, up 0.3% year-over-year, beating expectations by $1.14 billion. Adjusted earnings per share were $6.38, surpassing estimates by $1.46. The healthcare giant now expects adjusted EPS for the year to be between $19.50 and $20.00, a significant increase from its previous forecast of above $18.25 and higher than analyst expectations. A key metric measuring medical costs performed much better than Wall Street analysts had forecast in a Bloomberg survey, and the quarter's profit exceeded the highest estimates.

Group CFO Wayne DeVitt stated that the new outlook will serve as a starting point for returning to profit growth at the company's historical target rate next year. UnitedHealth has long sought annual EPS growth of 13% to 16%. In an interview, he said that more favorable medical cost data in the first half of the year gave the company confidence to raise its forecast.

GE Aerospace (GE) reported Q2 earnings that beat expectations, with strong order growth leading to another upward revision of its full-year guidance. GE Aerospace's second-quarter earnings report showed EPS of $2.02 and revenue of $12.6 billion, both surpassing Wall Street expectations of $1.86 and $11.9 billion, respectively.

New order bookings during the period totaled $16.5 billion, exceeding revenue for the period and representing a 17% increase compared to the same period last year, demonstrating robust demand for its products and services. For the full year 2026, the company now expects revenue growth to be in the "high double-digit" percentage range, up from a prior forecast of 10%–12%. Its full-year EPS expectation has also been raised from $7.10-$7.40 to $7.65-$7.85.

Multiple businesses are advancing together, with Abbott Laboratories (ABT) reporting Q2 earnings that exceeded expectations and raising its profit forecast. Abbott delivered better-than-expected results for the second quarter, prompting an upward revision to its 2026 profit guidance, thanks to continued improvement across most business segments.

Abbott stated in a release on Thursday that second-quarter sales were $12.6 billion, above the market forecast of $12.5 billion. Adjusted EPS for Q2 was $1.31, beating the market estimate of $1.28. Looking ahead, the company now expects adjusted EPS for the year to be between $5.45 and $5.60, with the midpoint of the guidance raised by 5 cents.

Key Economic Data and Events Schedule

20:30 Beijing Time: US Initial Jobless Claims for the week ending July 11th, US Philadelphia Fed Manufacturing Index for July, US Retail Sales Month-over-Month for June.

22:00 Beijing Time: US Pending Home Sales Index Month-over-Month for June.

00:30 Beijing Time (next day): Speech by 2026 FOMC voter and Dallas Fed President Lorie Logan.

01:25 Beijing Time (next day): Speech by 2028 FOMC voter and Kansas City Fed President Jeffrey Schmid.

07:00 Beijing Time (next day): Speech by Federal Reserve Vice Chair Philip Jefferson on the economy and monetary policy.

09:00 Beijing Time (next day): National address by US President Donald Trump.

Earnings Preview

Friday pre-market: Netflix, Inc. (NFLX), Alcoa Corporation (AA).