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The week in Global Markets
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The yen moved from a vulnerability in Japan's low-rate regime to an active policy target as authorities intervened and the United States joined the effort. Confirmation of the joint action, along with plans to limit Treasury-market spillovers, put crowded yen shorts and carry trades at immediate risk.
The semiconductor selloff widened from Asian chip shares into global equities, hedge-fund collateral calls, and leveraged AI positions. The collapse of Situational Awareness and tougher credit terms showed that the reversal was also exposing concentrated financing and borrowing risks.
Pressure on Kevin Warsh before the meeting became a market test after the Fed held rates in a split vote and long-term yields rose. Subsequent uncertainty over his policy direction, fewer meetings, and the central bank's ability to anchor expectations kept financial conditions tight without a rate increase.
Long-duration assets lost their traditional defensive role as real yields and Treasury yields climbed, while mortgage rates approached or exceeded levels that threaten housing recovery. The bond rout also showed how higher borrowing costs can offset promised relief and narrow fiscal room.
China's export surge continued to export disinflation and trade friction, but factory activity and domestic demand weakened as stimulus remained cautious. The deterioration reached industrial commodities, with iron ore falling as traders marked down Chinese demand.
Iran-related de-escalation briefly lowered oil prices, but the conflict had already lifted mortgage rates and kept inflation risks in focus. Higher oil prices and tariffs then appeared in slower US growth, while Russia-Ukraine fighting added a separate risk premium to wheat supplies.
Capital rotated toward less technology-heavy markets as the FTSE 100 and financial stocks outperformed during the chip rout. Equal-weighted equities also beat the Nasdaq-100, suggesting broader participation even as investors questioned whether the shift would last.
The AI-led collapse in Korean chip shares inflicted heavy losses on retail investors and exposed concentrated household wealth. A record rebound did not restore confidence, as continued selling and criticism of policies encouraging retail participation made market support politically costly.
Day’s Recap