James Brodie
Head of Learning & Development, Flux
Balanced Picture in the US Economy, Single Day Wipeout in Asian Markets, AI
Soft landing holds, but AI selloff wipes $1T from Asia as chip costs rise, Apple hikes prices and firms cut AI spending.
The US economy is showing a balanced picture, with personal income and spending both up 0.7%, real consumer spending remaining positive, and the labour market staying resilient with jobless claims falling to 215,000.
Inflation continues to cool, with Core PCE coming in at 0.3% month-on-month and 3.4% year-on-year - exactly as expected. With growth around 2.1%, no signs of recession, and no inflation reacceleration, the data points to a soft landing scenario, with the OIS pricing just 31bp hikes by year end.
Asian markets suffered a massive single-day wipeout exceeding $1 trillion, led by South Korea's KOSPI (-8.2%), Japan's Nikkei (-4.5%), Taiwan (-3%), and China's SSE (-2.15%), triggered by Apple's price hikes to offset rising chip costs reigniting fears over stretched AI and tech valuations. The sell-off extended to US mega-caps, with the Magnificent 7 collectively down roughly $5 trillion from their all-time highs, marking their worst ever day relative to the Nasdaq-100 , with Microsoft and Meta each shedding over 30%.
Apple has raised Mac and iPad prices by up to 25%, with Tim Cook citing soaring chip costs as "unavoidable." One of the first clear signs of AI-flation. The race to build AI is driving up semiconductor costs—and consumers are starting to pay the price.
Stock trade defaults reported by securities firms in Taiwan rose to $62 million so far in June, the highest monthly total since data began in 2019. A stock trade default occurs when investors who bought shares on margin fail to pay for those purchases, or when sellers fail to deliver the shares required to settle the trade. Trade defaults have soared +300% over the last 2 months and now exceed the 2021 record by ~20%.
Separately, enterprise AI spending is under significant pressure, with UBS reporting that 60% of companies monitoring AI budgets are shifting toward cheaper and open-source models. The drivers include extreme costs, and teams exceeding quotas by 200% - prompting companies to cut internal AI tools and adopt model routing strategies that reserve premium models only for complex tasks. Chinese open-source models like DeepSeek, Qwen, and others are filling the gap, fitting enterprise cost structures by running locally or via cloud catalogues, signalling a structural shift in how AI is consumed rather than an outright retreat from it.
The change in hyperscaler vs chip stock free cash flow is stunning (Bloomberg) (via BBG)
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