In 30 seconds: China's trade surplus continues to expand dramatically—particularly in vehicles and semiconductors—while US import data shows a sharp but potentially understated drop in Chinese goods, with tariff avoidance and rerouting through Southeast Asia complicating the picture. Hyperscalers including Google, Amazon, Microsoft, Meta, and Oracle are spending at historic rates on AI infrastructure—issuing $159 billion in debt in just five months and driving data centers to nearly 7% of all private nonresidential construction—while comparisons to the dot-com bubble's IPO frenzy emerge around the SpaceX listing. Technology stocks suffered a sharp correction of nearly 12% in a week, with forced rebalancing in leveraged ETFs amplifying the move, while broader market indices held up as investors rotated into banks, industrials, and equal-weight positions. Brent crude is struggling to hold $90/barrel despite an ongoing Iran conflict and Strait of Hormuz disruption, with weak Chinese demand, rapid SPR drawdowns, and strategic calculations by China over how long to let the closure persist all weighing on the market.
The US annualized goods deficit hit $1.1 trillion in April, roughly 4 pp of US GDP, and the non-petroleum slice was actually larger at $1.2 trillion. Capital goods imports alone are running $300 billion annualized above post-liberation-day levels, or about 1 pp of GDP. These are big numbers. Export volume growth is running much faster than in 2023. The vehicle sector is the headline: China's trade surplus in finished vehicles reached $150 billion over the last 12 months of data, equivalent to 0.75 pp of GDP, and is heading toward $200 billion on current trajectory. Monthly vehicle exports annualized at 12 million units in May, of which 10 million were passenger cars. China now exports to the EU at 2x the rate it imports from the bloc. German exports, meanwhile, entered a downleg starting in 2024. The domestic picture is less triumphant. The rise in China's own imports is very narrow -- comes mostly from a few categories that don't seem to indicate a broad based uptick in Chinese end demand; the manufactures component is almost all chips and gold/gems/jewelry. Beijing first deployed rare earth controls against Japan in 2010.
The hyperscalers have decided that the future costs money, and they would like to borrow yours. You can see it in the physical landscape. Data centers now account for nearly 7% of all private nonresidential construction, up from 2% just four years ago. Taiwan Semiconductor, Samsung Electronics, and SK Hynix are all driven by the AI CapEx boom. If you want a dot-com comparison, consider the scale shift. During the six years from 1995 through 2000, there were 2,555 IPOs raising $250 billion at an implied market cap of $1.4 trillion. One company now proposes to do what thousands did then, which is either a sign of progress or a sign of something else.
The same technology sector share of US investment-grade issuance driving AI CapEx Boom Drives Record Debt Issuance and Construction is also a factor in Tech Sector Selloff, Rotation Into Broader Market.
The technology sector has had a clarifying week. Technology sector $XLK dropped close to 12% in a week, a move that completely round-tripped a 14.4% rally that had built from 2024-05-19 to 2024-06-02. On one session alone, the sector fell nearly 5%, taking out its prior Friday closing low. Friday's broader S&P 500 volatility spike was about resetting overbought/crowded calls, and not about downside hedging. S&P 500 sectors higher on the day: 9. Banks and industrials doing well is a good thing, and the rotation is a healthy development. Technology accounts for nearly 40% of US equities, and 20% of US investment-grade issuance. 10 year nominal yield: 4.53%.
Brent crude is fighting for its life to hang onto $90 per barrel, which is a strange sentence to write about a commodity that theoretically benefits from a shooting war and a closed strait. The benchmark sits just a dollar per barrel above its mid-April Iran War low, and prices remain sub-$100 three months into the Iran War. You would think a blockade of the world's most important oil chokepoint would do more for the bulls. The curve is telling a story the flat price isn't. The Brent six-month calendar spread has almost halved, with nearby contracts falling much faster than deferred ones. On an inflation-adjusted basis, the Brent six-month calendar spread is running at $11 per barrel in June, the largest for any month since 2010 and sitting in the 96th percentile historically. The question is why. They'll let it go until the US cries uncle — 60 days, 90 days, 180 days, whatever it takes. The longer it goes, the better it is for them strategically now that the US has the hornet's nest that is Iran stuck on its foot. BP confirmed a reorganization of its business back into the traditional Big Oil model of upstream and downstream, with renewables leadership downgraded massively and folded into the broader structure. Gold slipped 1.25% to $3,281.90, a modest retreat on the day.
Here is where the labor market stands for your paycheck.
Initial jobless claims: 225,000, up 6.13% on the week
Continuing claims: 1,777,000, down 0.45% on the week
Job openings (JOLTS): 7,618.00, up 10.61% on the month
Quits rate: 1.90, down 5.00% on the month
Unemployment rate: 4.30, flat 0.00% on the month