Moonshot AI Release Deepens Semiconductor Rout, Oil Prices Surge

Global Stocks Decline Amid Semiconductor Plunge and Geopolitical Tensions

World stock markets experienced a broad downturn on Friday, largely driven by a significant decline in semiconductor shares for the third consecutive day. This rout was fueled by investors scaling back their positions in artificial intelligence-related assets, coinciding with the unveiling of a substantial new AI system by China's Moonshot. Simultaneously, oil prices reached their highest levels in over a month as geopolitical tensions escalated between the United States and Iran, with both nations expanding attacks on critical infrastructure.

Semiconductor Sector Faces Significant Losses

The Philadelphia semiconductor index recorded its third straight day of losses, closing down 1.6% on Friday. This placed the index 20% below its recent record close from June 22, having earlier dipped as much as 23.5% from that peak. Contributing to existing concerns regarding high valuations and the sustainability of AI capital expenditure growth was the introduction of Kimi K3 by Chinese AI startup Moonshot. The company stated Kimi K3 is the world's largest open-weight AI system, offering performance comparable to a leading frontier model from U.S. firm Anthropic.

On Wall Street, major indexes recovered slightly from their session lows as some investors engaged in short covering and buying. However, market sentiment was described as "extremely emotional and sentiment driven," indicating a "shaky environment." The Dow Jones Industrial Average fell 406.55 points, or 0.77%, to 52,146.42. The S&P 500 decreased by 76.08 points, or 1.01%, closing at 7,457.69, while the Nasdaq Composite dropped 361.70 points, or 1.40%, to 25,520.24.

For the week, the S&P 500 concluded down 1.55%, the technology-heavy Nasdaq lost 2.9%, and the Dow declined 0.93%. Globally, MSCI's gauge of stocks fell 1.17% on the day. European markets also saw declines, with the pan-European STOXX 600 index ending down 0.34%. Losses were more pronounced in Asia, where MSCI's broadest index of Asia-Pacific shares excluding Japan finished down 2.7%, and Japan's Nikkei tumbled 4%, positioning it 12% below its recent high.

Oil Prices Jump on Escalating Middle East Tensions

Energy markets saw a significant rise in oil prices, reaching levels not seen in over a month. This surge followed an escalation of conflict between the United States and Iran, involving expanded attacks on key infrastructure. The United States targeted bridges in Iran, prompting Tehran to strike a power and desalination plant in Kuwait. In the strategic Strait of Hormuz, a U.S. Marine unit boarded a tanker, and another vessel was reportedly struck by a projectile, further disrupting global energy supply routes.

U.S. crude settled up 4.48%, or $3.54, at $82.49 a barrel, while Brent crude settled at $88.10 per barrel, an increase of 4.59%, or $3.87. Energy stocks were the sole U.S. industry sector to register gains on Friday. Additionally, defensive assets like government bonds experienced increased demand, and safer equity sectors such as utilities saw smaller declines compared to higher-growth industries.

Bond and Currency Markets See Shifts

In the bond market, longer-dated U.S. Treasury yields declined on Friday, setting up for a weekly fall. This movement occurred as market participants largely discounted the possibility of a rate hike from the Federal Reserve at its upcoming policy meeting later in the month. The yield on benchmark U.S. 10-year notes decreased by 1.55 basis points to 4.554% from 4.569% on Thursday. Similarly, the 30-year bond yield fell by 2.39 basis points to 5.0731%.

The dollar remained stable on Friday but concluded the week lower. This was attributed to subdued U.S. inflation data, which led traders to reduce their expectations for Federal Reserve rate increases. The dollar index, measuring the greenback against a basket of currencies including the yen and the euro, rose 0.05% to 100.76. The euro was down 0.03% at $1.1437 against the dollar, while the dollar strengthened 0.03% against the Japanese yen to 162.43.

Gold Shows Weekly Loss Despite Friday Gain

Precious metals saw gold prices rise on Friday. However, gold was still on track for its largest weekly loss in six weeks. The increase in U.S.-Iran tensions, which drove energy prices higher, fueled concerns about inflation and expectations of potential future U.S. interest rate hikes. Spot gold increased by 0.99% to $4,009.19 an ounce, and U.S. gold futures rose 0.79% to $4,017.20 an ounce.