For first time, more central banks are set to shrink dollar holdings, survey finds
More of the world's central banks plan to cut dollar allocations than increase them in the coming decade as political risks associated with the U.S. currency rise, an OMFIF survey of public investors released on Tuesday showed. It is the first time the survey, carried out by the Official Monetary and Financial Institutions Forum, has found such a shift away from the dollar. The London-based thinktank set up in 2010 also found an eagerness among the 90 central banks, public pension funds and sovereign funds surveyed to significantly increase the use of AI from current levels. Survey participants, who collectively oversee some $10 trillion in assets, increasingly viewed volatility as a permanent feature and are testing new approaches to dealing with it, including applying AI to the problem. Gold, which has hit a series of record-high prices and is held by 82% of central banks, "has moved to the centre of reserve management strategy," the survey found. In the short term, it is the asset in which central banks plan most to increase holdings, with a net 30% of respondents intending to boost their allocation over the next one to two years.
Stock Market Investors Just Got Bad News From the Federal Reserve. History Says a Big Drop Could Follow.
The U.S. stock market has performed well in the past year, in large part because of enthusiasm surrounding the artificial intelligence trade. The S&P 500 (^GSPC +0.79%) and Nasdaq Composite (^IXIC +1.52%) are up 20% and 27%, respectively, since June 2025. Fed officials now anticipate at least one interest rate increase in 2026. That would mark the beginning of the fifth rate-increase cycle since 1999, and the last four cycles generally coincided with bear markets. The odds of interest-rate increases in 2026 have increased substantially In December, the Federal Reserve lowered the target range on its benchmark interest rate to 3.5% to 3.75%, representing a quarter-point reduction. At the time, the market anticipated at least two more quarter-point rate cuts in 2026, according to CME Group's FedWatch tool. But investors' expectations have changed because of the recent acceleration in inflation. "The most natural path for the Federal Open Market Committee (FOMC) is to delay further cuts until the effects of tariffs, higher oil prices and other effects of the war in the Middle East, and the effects of artificial intelligence demand have faded," Goldman Sachs strategists wrote in early June. The FOMC's latest economic projections reinforce that idea. The dot plot published after the June meeting indicates that 50% of Fed officials now believe at least one quarter-point rate increase will be necessary in 2026. That's up from zero in March. Moreover, about one-third of Fed officials expect at least two quarter-point rate increases this year. Rate-increase cycles have frequently coincided with stock market corrections Warren Buffett believes interest rates, especially those on Treasury bonds, are the single most influential variable in determining stock market valuations over time. Low interest rates generally make stocks more attractive, while high interest rates tend to make stocks less attractive. Interest rates have a direct and indirect impact on equities. - The direct impact involves the compression of valuation multiples. In theory, a stock is worth the sum of its future earnings discounted to present value. Higher interest rates reduce the present value of future earnings, which compresses valuations because investors aren't willing to pay as much for stocks when relatively safe bonds offer reasonably good returns. - The indirect impact involves higher borrowing costs. Business investments and consumer spending tend to slow when interest rates rise because it's more expensive to finance projects and purchases. In turn, corporate profits tend to grow more slowly, which can put downward pressure on stocks because equities are often valued based on earnings. If the Federal Reserve does raise interest rates this year, it would represent the first increase in a new tightening cycle (i.e., a period where rates are rising). The Fed has made that pivot four other times since 1999, and the major stock market indexes usually fell into correction territory at some point in the next three months. As shown, following the Fed's first rate increase in a tightening cycle, the S&P 500 and Nasdaq Composite have declined by an average of 10% and 15%, respectively, at some point during the next three months. In one instance, the Nasdaq actually fell more than 20%, meaning the index entered a bear market. Of course, past performance is not a guarantee of future results, nor are interest-rate increases written in stone. In fact, Morgan Stanley economists believe the Fed will hold interest rates steady through the remaining months of 2026 as inflation cools more quickly than anticipated. Nevertheless, investors should be prepared for volatility. Higher interest rates become more likely the longer inflation remains elevated, and rate increases could easily drive the stock market into a correction, particularly when valuations are already stretched. The S&P 500 currently trades at 20.1 times forward earnings, a premium to the 10-year average of 19.
Stocks close out Q2, Nike earnings, egg prices and more in Morning Squawk
The Dow Jones Industrial Average recorded its best first half of a year since 2021. The Nasdaq Composite saw its largest quarterly gain since 2020, powered by record-setting advances in semiconductor stocks and cybersecurity leaders. The small-cap focused Russell 2000 soared more than 21% in the first six months of the year, its best first-half since 1991. Brent crude saw its biggest monthly decline since March 2020, but is still up big on the year following the U.S. war with Iran. Gold saw its largest quarterly decline in 13 years, further unwinding last year's monster run. Nike reported stronger-than-expected results for the fiscal fourth quarter. But the athletic retailer posted a 12% sales drop in the closely watched China market, leading shares down 3% in extended trading. Total revenue ticked down 1% from the same quarter a year prior. While revenue for North America rose 3%, it still came up short of Wall Street's consensus forecast. On the other hand, the Oregon-based company said its gross margin grew by nearly 9% in the quarter. As CNBC's Laya Neelakandan notes, that was driven in part by an expected tariff refund after the Supreme Court struck down many of President Donald Trump's levies. In an interview with CNBC's Sara Eisen yesterday, Cleveland Federal Reserve President Beth Hammack called the demand for artificial intelligence infrastructure "insatiable." And she warned that it could drive up inflation. Hammack said during the European Central Bank Conference in Sintra, Portugal, that inflation has been "too high" for the past five years. As a result, she said the Fed may need to raise interest rates. Major egg producers settled a price inflation probe with the Justice Department and several state attorneys general. As part of the deal, the companies agreed to donate around 53 million eggs to food banks and related nonprofits. The DOJ and states alleged that Cal-Maine Foods, Versova and Hickman's Egg Ranch "illegally coordinated" for almost three years to raise a daily price index for the food. The proposed settlements would prevent the companies from "coordinated" price manipulation in the future by adding antitrust compliance programs and compliance officers.
Mag 7 value shrinks by $2.3 trillion amid AI spending jitters — but investors are still backing chipmakers
Around $2.3 trillion has been wiped off the value of the Magnificent 7 this month as the tech giant's huge infrastructure spending is increasingly scrutinized by investors, who see stronger returns in other parts of the market. These companies, in particular Amazon, Microsoft, Alphabet and Meta, are collectively spending hundreds of billions of dollars buying chips and building data centers to power their artificial intelligence services.
Magnificent Seven stocks lose $2.3 trillion in June 2026
Across the industry, capital expenditures tied to AI are on track to top $700 billion in 2026 — a year-over-year jump of roughly 70%.
Big Tech's first half was a story of hardware versus software
Amazon (AMZN), Google (GOOG, GOOGL), Meta, and Microsoft are expected to spend roughly $725 billion this year on capital expenditures, with the majority of that going to AI infrastructure. Look at Micron, for instance. In its latest quarter, it reported a 345% increase in revenue to $41.4 billion and earnings per share that blasted higher 1,214% to $25.11.
SpaceX Just Raised $25 Billion in a Debt Sale. Here's What That Means for Investors.
SpaceX raised $25 billion through five tranches of senior unsecured notes, with maturities ranging from 2031 to 2056 and interest rates spanning 5.35% to 6.65%, locking in decades of additional debt obligations. The primary use of proceeds will be to repay the $20 billion bridge loan SpaceX took out in March when it absorbed xAI and X. The remainder will go to general corporate purposes, which means Starship development, Starlink expansion, and artificial intelligence (AI) infrastructure. Companies like Amazon and Microsoft have used the same playbook to fund infrastructure at scale. The question is whether the AI infrastructure it is building with that borrowed capital will generate the returns needed to justify a stock that, even after its recent sell-off, still trades at more than 100 times trailing revenue.
Cleveland Fed's Beth Hammack warns AI is fueling inflation, rate hikes possible
We've got inflation that's too high, and it's been too high for the past five years. When I look at policy, if that continues, it may mean that we need higher interest rates to bring inflation back down to target. That view clashes with a position staked out by Federal Reserve Chairman Kevin Warsh, who contends that AI-driven efficiency will lower labor costs and act as a disinflationary force over time.
Warsh hits the international stage with peers sharing an inflation problem
Warsh participates in a question-and-answer session beginning at 9 a.m. EDT (1300 GMT) at the European Central Bank's annual economic forum in Sintra, Portugal, where he will share a stage with ECB President Christine Lagarde, Bank of England Governor Andrew Bailey, and Bank of Canada Governor Tiff Macklem. All three were signatories to an unprecedented letter earlier this year in support of former Fed Chair Jerome Powell in his battle with the Trump administration over Fed independence, an issue that hit a key milestone this week when the U.S. Supreme Court ruled Fed Governor Lisa Cook could keep her job despite President Donald Trump's announcement last year that he had fired her. Powell has been lauded by his peers as a bulwark in that fight, considered important to maintaining the Fed as a prop to global financial stability. Warsh, so far, has been reluctant to speak directly to issues like the attempted firing of Cook or the legal pressure brought against Powell. Wednesday will be Warsh's first public appearance outside the June 17 press conference that followed his first policy meeting as chair, where the Fed held interest rates steady and Warsh took a hawkish tone in pledging to hit the central bank's 2% inflation target.
Strong dollar pushes yen to 40-year low as traders test Japanese authorities
The U.S. inflation is well above target, the economy is growing and policymakers' new quarterly projections show nine out of 19 anticipate a rate hike by year-end. Thursday's U.S. non-farm payrolls data will be closely watched, as will other jobs data this week.
Q2 US Leveraged Finance Survey: Software, inflation remain in the crosshairs
Inflation rose, with annual CPI at 4.2% in May. Eight-one percent of respondents believe inflation will be 3% or higher in H2, up sharply from 52% who held that view last quarter. Some 12% anticipate inflation of 4% or higher. No respondent believed it would be below 2.50%. 41% of respondents believe the loan payment default rate (which excludes distressed exchanges/liability management transactions or "LMEs") will be 1.50-1.99% at the end of 2026. This compares to the current 1.35% level. Thirty-five percent anticipate a default rate range of at least 2.00%.
SMMT calls for immediate review of UK ZEV Mandate
The pressure will increase sharply from January 2027, when annual targets rise to 38% BEV (battery electric vehicle) sales for cars and 34% for vans, before climbing again to 52% and 46% respectively in 2028. Current market shares are 23.9% for cars and 9.5% for vans. SMMT estimates that carmakers alone have already spent more than £12 billion on discounts to stimulate demand – money that could otherwise have supported new models, jobs and investment. The UK's ZEV Mandate was first set out under Boris Johnson in 2020 and took effect in 2024, when manufacturers had to ensure that at least 22% of car sales were electric.