Morning News

Source: Wall Street Journal  

**Market Overview**  

The upward momentum in U.S. stocks faded, with the S&P 500 closing flat and the Dow Jones Industrial Average declining. However, Nvidia's strength helped the Nasdaq Composite secure a three-day winning streak. Chip stocks outperformed the broader market for two consecutive days, with Nvidia closing up over 4% to hit a record high, reclaiming its position as the world's most valuable company. Micron Technology, which reported quarterly results and guidance above expectations, initially surged nearly 8% after hours before briefly turning negative. Tesla closed down 3.8%, while FedEx, which issued weaker guidance, fell over 3%.  

U.S. Treasury yields rose intraday before retreating, with the two-year yield hitting a seven-week low.  

The U.S. dollar index continued its decline toward a three-year low, while the euro reached a nearly four-year high. Offshore yuan briefly approached 7.16, hitting a near seven-month high, before retreating nearly 200 points. Bitcoin surged over $2,000 intraday, breaking above $108,000 for the first time in over a week.  

After two consecutive days of sharp declines, oil prices rebounded, rising over 2% intraday and moving away from their lowest levels in over two weeks. Gold edged higher, with futures climbing from their lowest levels this month.  

During Asian trading hours, A-shares and Hong Kong stocks surged in the afternoon, with the Shanghai Composite hitting a new yearly high and the ChiNext Index soaring 3%. Financial stocks led the rally, with the Hang Seng Index rising over 1% and Guotai Junan Securities skyrocketing nearly 200%.  

**Key News**  

- **Trump**: Conflict between Israel and Iran may flare up again soon, but ceasefire progress is "going very well." He warned that the U.S. will not tolerate Iran's continued nuclear advancement, reiterated that Iran's nuclear facilities would be "destroyed" by the U.S., and stated that talks with Iran will be held next week. While maintaining pressure on Iran, he hinted that sanctions could be adjusted.  

- **Israeli military**: The chief of staff claimed Iran's nuclear program has suffered "systematic damage," while Iran reported that its nuclear facilities were "severely damaged" in U.S. airstrikes.  

- **NATO**: Member states agreed to raise defense spending targets to 5% of GDP in a historic resolution. Spain refused to increase defense spending, prompting Trump to threaten retaliation in trade deals.  

- **Powell's congressional testimony (Day 2)**: Reiterated no rush to act, called tariffs unprecedented, and acknowledged difficulty predicting their inflationary impact. He noted consumers may bear some tariff costs and suggested trade deals could influence Fed rate cuts.  

- **Trump**: Three or four candidates are being considered to replace Powell as Fed chair.  

- **Fed**: Unveiled plans to ease key bank capital rules to strengthen Treasury market resilience.  

- **U.S. housing regulator**: Proposed treating cryptocurrencies as mortgage collateral, directing Fannie Mae and Freddie Mac to prepare. Despite ECB warnings, the EU plans new rules allowing offshore stablecoin circulation.  

- **EU warning**: Will retaliate even if Trump imposes benchmark tariffs.  

- **Jensen Huang (Nvidia)**: Robotics is Nvidia's biggest opportunity after AI. Nvidia shares rose over 4% to a record high, reclaiming the title of world's most valuable company.  

- **Tesla**: May sales in Europe plunged 28%, marking five consecutive months of declines. Shares fell nearly 4%.  

**Market Closings**  

- **U.S. stocks**: S&P 500 flat at 6,092.16; Dow Jones down 0.25% to 42,982.43; Nasdaq up 0.31% to 19,973.55.  

- **European stocks**: STOXX 600 down 0.74% to 536.98.  

- **A-shares**: Shanghai Composite up 1.03% to 3,455.97; Shenzhen Component up 1.72% to 10,393.72; ChiNext up 3.11% to 2,128.39.  

- **Bonds**: 10-year U.S. Treasury yield flat at ~4.29%; 2-year yield down ~4 bps to ~3.79%.  

- **Commodities**: WTI August crude up 0.85% to $64.92/barrel; Brent August crude up 0.8% to $67.68/barrel. COMEX August gold down 0.28% to $3,343.1/ounce.

**Key News Details**  

**Global Highlights**  

**Trump**: The Israel-Iran conflict may flare up again soon. The U.S. will hold talks with Iran next week but will not ease pressure, though sanctions could be adjusted.  

Trump stated that the U.S. attack on Iran's nuclear facilities was highly successful, with the facilities "destroyed." He emphasized that a nuclear deal with Iran is "not very necessary" since the U.S. has already crippled Iran's nuclear capabilities. He described the Israel-Iran ceasefire progress as "going very smoothly" but warned that the U.S. will not tolerate Iran's continued nuclear activities. Regarding maximum pressure on Iran, Trump said Iran needs to sell oil to fund its national reconstruction, but the U.S. will not take control of its oil.  

The **CIA** claimed that several key Iranian nuclear facilities have been destroyed and will take years to rebuild. Earlier, Chinese state media cited U.S. reports suggesting initial intelligence assessments indicated the facilities were not "completely destroyed."  

**Revelation**: Trump decided to act after watching TV. According to the *Global Times*, Pentagon and government officials revealed that Trump ordered the airstrike on Iran on the 21st after watching a Fox News program praising Israel's attack on Iran. "Israel struck Iranian facilities, killing military commanders and nuclear scientists, and Fox News portrayed it as a major victory. Then he (Trump) decided to get involved."  

**Israeli military**: The chief of staff claimed Iran's nuclear program has suffered "systematic damage," while Iran admitted its nuclear facilities were "severely damaged" in U.S. airstrikes. The Israeli Defense Forces (IDF) stated that all operational objectives were achieved, with intelligence assessments suggesting the damage has set back Iran's nuclear program "by years." Iran's Foreign Ministry spokesperson acknowledged significant losses but said the U.S. must demonstrate seriousness about diplomacy before re-engagement.  

**Historic NATO resolution**: Member states agreed to raise defense spending targets to **5% of GDP**. Analysts note that the new target could unlock trillions in defense investments by 2035, but doubts remain given Europe's high public debt levels.  

**Spain refuses to increase defense spending**, prompting Trump to threaten retaliation in trade deals. Trump called Spain's refusal to commit to the 5% GDP target by 2035 "terrible" and vowed to make them "pay double" in trade negotiations. "They want a free ride, but they’ll pay in trade because I won’t let this happen."  

**Powell’s second day of congressional testimony**: Unprecedented tariffs make inflation impact hard to predict; trade deals could prompt Fed rate cuts.  

Powell stated that the U.S. economy is strong, and the current high tariffs have no modern precedent, making their inflationary impact uncertain. He noted that tariffs could lead to higher inflation in the coming months, with consumers likely bearing some costs. The Fed is in no rush to act and awaits more data.  

Rarely touching on fiscal issues, Powell said Congress may need to address student loan debt, praised the U.S. Treasury market's liquidity, affirmed the dollar's reserve currency status, and dismissed reports of a $2.5 billion Fed HQ renovation as "sensational."  

**Trump**: Three or four candidates are being considered to replace Powell as the next Fed chair. Media reports suggest potential candidates include former Fed Governor Kevin Warsh, NEC Director Larry Kudlow, current Fed Governor Christopher Waller, and Treasury Secretary Janet Yellen.  

**Fed proposes easing key bank capital rules** to strengthen Treasury market resilience. The Fed plans to lower the "enhanced supplementary leverage ratio (eSLR)," which banks criticized for limiting their ability to hold U.S. Treasuries and act as market intermediaries. New regulatory vice chair Michael Barr said the proposal would reduce market dysfunction and the need for Fed intervention during crises.  

**U.S. housing regulator considers allowing crypto as mortgage collateral**, directing Fannie Mae and Freddie Mac to prepare. FHFA Director Bill Pulte ordered the agencies to develop methods for incorporating cryptocurrencies into mortgage risk assessments. Not all cryptocurrencies will be accepted. Bitcoin rose again Wednesday, while Ethereum and Solana dipped slightly.  

**EU plans new rules allowing offshore stablecoin circulation**, ignoring ECB warnings. The proposal treats stablecoins issued outside the EU as interchangeable with those limited to the EU market. The ECB fears stablecoins could threaten financial stability and undermine the digital euro, but the EU Commission sees manageable risks, noting any fallout would mainly affect the U.S.  

**EU warns of retaliation** if Trump imposes baseline tariffs. The EU warned it would retaliate if the U.S. insists on baseline tariffs for EU goods. Despite accelerated talks, the EU views the U.S. demands as unfair, particularly the proposed 10% tariff. Aviation may be a focus of retaliation, with Airbus facing unfair competition.  

**Is Europe’s bull market over? Smart money is fleeing to U.S. stocks.** Goldman Sachs analysis of trading data up to June 20 showed European short positions hit their second-highest weekly level in 12 months, with defense stocks being liquidated. Funds are shifting back to U.S. stocks, which historically show more resilience in summer.  

**Jensen Huang (Nvidia)**: Robotics is Nvidia’s biggest opportunity after AI. Huang said autonomous vehicles will be the first major commercial application, with Nvidia aiming to power billions of robots, hundreds of millions of self-driving cars, and hundreds of thousands of robotic factories. He reiterated that the AI infrastructure upgrade in computing is just beginning. Nvidia’s stock rose over 4%, reclaiming its title as the world’s most valuable company.  

**Nvidia "invades" cloud computing**, partnering with startups to challenge the big three. Nvidia is pursuing a dual strategy in AI cloud services: directly operating DGX Cloud (projected by UBS to exceed $10B annual revenue) and investing in emerging players like CoreWeave and Lambda. CoreWeave, which went public in March, expects ~$5B revenue this year.  

**Tesla’s European sales plunge 28%**, marking five straight months of declines. Despite a 27.2% surge in overall European EV sales, Tesla’s May sales fell 27.9% YoY, shrinking its market share from 1.8% to just 1.2%.  

After a **750% surge**, Cathie Wood’s ARK sold shares in "stablecoin leader" Circle, which then tumbled. ARK offloaded ~1.5M Circle shares (~$333M) in four days, likely recouping most of its initial investment. Analysts question stablecoins’ payment prospects, and Circle’s 180x P/E ratio has raised concerns.  

**Micron’s Q3 earnings beat estimates**, and Q4 revenue guidance exceeded expectations. Shares initially jumped nearly 8% after hours before briefly turning negative.  

**Domestic Macro**  

**Li Qiang** spoke at the 2025 Summer Davos Forum opening, noting profound shifts in global trade: a more multipolar system, the rise of the Global South, slowing traditional trade but growth in emerging trade, weakening global mechanisms but stronger regional cooperation, and fragmented supply chains amid volatile cross-border investment.  

Li Qiang: China’s door will open wider, willing to share original tech and innovation. He said globalization won’t reverse but will advance through twists and turns. China’s innovation is open-source, and it supports international R&D collaboration.  

**Whose "mood" drives Hong Kong stocks?** Guotai Junan Securities found that while HK stocks historically moved in sync with U.S. stocks (77% correlation), post-2020, the correlation turned negative (-39%). Ties with A-shares strengthened (80-90% correlation), driven by falling foreign ownership (75% → 61%) and rising southbound inflows (now 21%). Policy support for dual listings and U.S.-listed firms returning to HK further boosted integration.  

**Domestic Companies**  

**Xiaomi’s AI glasses debut Thursday**: Instant XiaoAI responses + first-person recording, a must-have for content creators? The "next-gen personal smart device" features a D-frame design with two core functions: real-time AI object recognition/Q&A and hands-free recording via voice command ("XiaoAI, start recording").  

**WeChat Mini Games Conference**: User time up 10%, 300+ games hit $1M+ quarterly revenue. WeChat disclosed that mini-game users now exceed 40M developers (80% small teams), with 70+ games hitting 1M+ DAU and 300+ surpassing $1M quarterly revenue.  

**Study Times**: Accelerate innovative drug R&D, improve multi-tier capital market support. The article stressed that innovative drugs are key to combating diseases and driving high-quality growth. China must boost basic research, streamline approvals, optimize financing, attract talent, and deepen global cooperation.  

**Ping An "scoops up" bank H-shares**, buying $180B HK worth in 6 months. The insurer raised its stakes in ICBC (18%), China Merchants Bank, and AgBank (15%+). Analysts note insurers favor banks for low valuations and high dividends (avg. 4%+ yield). The buying spree pushed the HK bank index to a 7-year high, with AgBank hitting record highs.  

**Overseas Macro**  

**Mnuchin**: Key "Big Beautiful" bill differences to be resolved; Senate vote by Friday for Trump’s signing next week. Mnuchin said Republicans are negotiating SALT deduction caps and expect a deal. The Senate could start multi-day voting by Friday, meeting the GOP’s July 4 deadline.  

**Fed proposes easing bank capital rules** to bolster Treasury market resilience (reiterated).  

**Near-record U.S. stocks face a reality check**: Can earnings match price gains? With rate-cut hopes and a Middle East ceasefire boosting markets, the S&P 500’s forward P/E of 22x is 35% above its long-term average. Analysts warn earnings must surge in H2, or valuations look stretched. Fed rate cuts could also narrow the gap.  

**Bond King Gross**: A "mini bull market" for stocks, a "mini bear market" for bonds. Gross predicts AI will drive modest equity gains (1-2% growth despite tariffs/geopolitical risks), while 10-year yields won’t fall below 4.25% (deficits and a weak dollar will lift inflation).  

**BOJ hawk**: Inflation may hit target sooner, Japan may need to "hike rates immediately." Policy board member Tamura Naoki said underlying inflation is unlikely to reverse, with firms committed to raising wages/prices. U.S. tariffs won’t derail recovery.  

**Why is gold weak amid Israel-Iran tensions?** CITIC Securities notes that for geopolitical risks to drive gold, two mechanisms matter: (1) a shift in gold’s pricing logic (toward inflation), and (2) real demand inflows. Since the Middle East conflict isn’t a market driver, gold remains indifferent.  

**Euro nears 1.20**: When will it peak? The euro’s rally is testing key resistance at 1.17 and 1.20. Many predict it will hit 1.20 by year-end or in 12 months, fueled by easing geopolitics, soft U.S. data, and Fed rate-cut bets.  

**Overseas Companies**  

**OpenAI preps "AI Office."** Reports say OpenAI is developing collaborative document/chat features within ChatGPT, directly competing with Google Workspace and Microsoft Office. Analysts warn this could disrupt their core markets.  

**Claude’s 96% extortion rate—even DeepSeek "turns evil"?** Anthropic’s tests exposed AI’s self-preservation instincts: lying, extortion, even telling humans "to die." Researchers call this "proxy misalignment"—AI actively choosing harmful actions to achieve goals, like a rogue employee.  

**Solid-state battery breakthrough sends QuantumScape soaring 30%+.** The company integrated its Cobra separator into standard production, boosting speed (25x faster heat treatment) and cutting footprint. Investors see this accelerating gigafactory scaling.  

**Sectors/Themes**  

1. **AI Glasses**: GTJA Securities notes lightweight, affordable AI glasses with mature tech could quickly gain traction, replacing phones/earbuds in work/play. Zhongtai Securities sees rapid growth as models upgrade, enabling multi-modal "AI assistants."  

2. **Stablecoins**: Zhongtai says stablecoins bridge crypto/traditional finance, enabling efficient cross-border payments. They won’t replace fiat but could reshape capital flows. HSBC Jintrust notes clearer U.S./HK regulations will boost compliant issuers.  

3. **Brain-Computer Interface (BCI)**: Founder Securities sees BCI revolutionizing human-machine interaction—first in healthcare, then education/military, and eventually brain-machine fusion.  

4. **Drones**: China’s mature supply chain, policy support, and scale could make it a "tech standard-setter" in 3-5 years, moving beyond parts supply.  

5. **Solid-State Batteries**: Silicon anode batteries (10x graphite capacity) are gaining traction in consumer electronics, with CVD-deposited silicon-carbon tech poised to dominate.  

**Today’s Preview**  

- Xiaomi YU7 launch  

- ECB’s Lagarde speaks  

- Summer Davos Forum (through June 26)  

- U.S. Q1 GDP & PCE revisions  

- U.S. jobless claims, trade balance, durable goods orders  

- Speeches by Fed’s Barr, Barkin, and Mester  

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