Global risk perception rises as chip demand drives tech costs

Risk aversion increased in global markets amid concerns that rising costs in technology and AI sectors could weaken end‑user demand, despite persistent optimism over a potential lasting peace in the Middle East. Energy‑driven inflation risks are shifting towards the digital sector as increasing chip demand in AI and tech sectors raises price pressures. For instance, Apple raised prices across its product line due to high chip costs, fuelling concerns that the profitability of AI and tech companies could suffer.

US data and Fed outlook

The US PCE price index rose 0.3% month‑on‑month and 3.4% year‑on‑year in May, within estimates. Core PCE met expectations, suggesting no significant forward‑looking deterioration in pricing behaviour despite high oil prices, leading to estimates of a potential slowdown in oil‑driven inflation. The likelihood of two Fed rate hikes by year‑end eased, with forecasts shifting towards October. The US economy grew 2.1% year‑on‑year in Q1, while durable goods orders fell 4.5% in May, below expectations. The 10‑Year Treasury yield fell to 4.36%.

Oil and Asia sell‑off

Reports that Iran may charge fees for Hormuz transit emerged, though US and GCC ministers rejected any tolls. Brent crude rose 2.1% to $74.96 on Thursday but traded lower on Friday. Asian markets saw sharp selling pressure, with Japan’s Nikkei 225 falling 4.5% and South Korea’s Kospi dropping 6.9% amid tech sector concerns. Tokyo’s inflation rose to 1.7%, reinforcing expectations of BoJ hawkishness. The dollar/yen exchange rate hit a 40‑year high before easing.