by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment today opens with a few words on this week’s rout among technology stocks and the broader equity markets. We next review several other international and US developments that could affect the financial markets today, including a major US concession to Iran on selling its oil in dollars and more evidence that investors are trying to pull funds from the US private-credit market as they worry increasingly about defaults.

Global Stock Markets: Investors are selling stocks aggressively so far this morning, pushing prices lower and especially punishing large technology shares. The main South Korean stock price index, which is dominated by Samsung and SK Hynix, fell approximately 10%, but European tech shares fell sharply as well. In the US, SpaceX and other tech shares have driven the NASDAQ index down about 2.5%. The selloff appears to have stemmed mostly from concern about rising interest rates around the world and rich tech valuations.

United States-Israel-Iran: The US Treasury Department yesterday said it will temporarily waive longstanding sanctions that had prevented Iran from selling oil in dollars. The move will allow Iran to sell oil at market prices, including to US buyers, and earn potentially billions of dollars. Vice President Vance later said the waiver is to reward Iran for agreeing to allow nuclear inspectors from the United Nations to once again visit the country’s facilities.

• Investors initially interpreted the US move as a sign of progress toward a lasting peace deal. Global oil prices therefore initially dipped on the news, but they have rebounded so far this morning.
• We would also note that the US move, if extended, could help reverse the widely held narrative that the US dollar is losing its status as the world’s reserve currency. With the removal of sanctions, for example, Iran would likely prefer to sell its oil for dollars at market prices rather than for Chinese renminbi at distressed prices.

Eurozone: S&P Global said its composite purchasing managers’ index for June rose to 49.5 from 48.5. Like most major PMIs, this one is designed so that readings above 50.0 point to expansion, while readings below that level point to contraction. Importantly, the subindex on prices paid fell to its lowest level since the start of the Iran war, suggesting price pressures from the conflict are dissipating. Nevertheless, the data suggests that the eurozone economy will likely be flat or even contract a bit in the second quarter.

European Defense Industry: Franco-German tank manufacturer KNDS has struck a deal allowing the German government to buy up to 40% of the company, setting the stage for an initial public offering in the coming weeks or months. The French government has also agreed to cut its stake to 40%, with the remaining 20% to be floated to the public. The move will give investors yet another way to capitalize on Europe’s booming defense sector as the threat from Russia and US withdrawal forces European countries to boost their military budgets.

Germany: Chancellor Merz, a former chair of US asset manager BlackRock in Germany, endorsed a proposal today for his country to adopt a Swedish-style public pension fund that would invest a share of workers’ wages in capital markets. Under the proposal, a compulsory individual contribution of 2.0% of salaries would “be managed centrally and invested in capital markets” to help pay for rising benefits. The proposal could drive increased business for asset managers and potentially reduce fiscal stressors as the population ages.

United Kingdom: Newly elected member of parliament Andy Burnham, who is widely expected to become prime minister next month, is reportedly demanding that incumbent Prime Minister Starmer further delay his controversial 10-year military investment plan. Starmer’s government has struggled to identify credible funding for the defense buildup, but Burnham could cut it back to help make fiscal space for domestic civilian programs.

• The dispute illustrates how funding pressures are becoming a headwind for some of Europe’s defense rebuilding programs.
• In turn, that has prompted a pullback in pricing for some European defense stocks, although we remain bullish on the sector over the longer term.

US Private Credit Industry: Private investment giant Apollo yesterday said investors in the second quarter requested to withdraw 17% of the value of its flagship private-credit fund for retail investors, up from withdrawal requests of 11% in the first quarter. Per the fund’s rules, Apollo only allowed redemptions of about 5% of the fund in the latest quarter, but the requested redemptions were still consistent with elevated concerns about rising debt defaults in the sector.

US Quantum Computing Industry: President Trump signed two executive orders yesterday aimed at speeding the development of advanced quantum computers and mitigating the security threats they present. The effort to boost the industry with the new orders is consistent with our discussion of quantum computing in our Mid-Year Geopolitical Outlook report, which we published yesterday.

• As noted there, quantum computing is rapidly evolving from a speculative niche to a strategically important sector.
• That, coupled with government support, could eventually draw capital now focused on artificial intelligence firms, leading to a rotation in favor of quantum computing.

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