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Let's start with a roundup of our top stories. A global sell-off in AI-related chip stocks is accelerating as investors question whether the industry's spending boom can deliver long-term returns. South Korea's SK Hynix has now shed around 570 billion US dollars in market value since peaking in June, while Samsung has fallen more than 12 percent in today's trading. Across Asia, a Bloomberg index of semiconductor shares is on course for its biggest one day drop since March. Boca Capital Partners founder Kim Forrest sums up how many investors feel right now. How much are these companies spending and will they ever get it back? Is the business model sufficient to drive revenues and earnings higher? And probably at this point, we're thinking more about margins and earnings in the future. We don't really care about what's happening today. Kim Forrest says investors also fear the AI spending boom is becoming increasingly circular. These concerns intensified after NVIDIA unveiled more than $750 billion in new AI deals, including financing for customers buying its own chips. Market fears are also mounting over China's rapid progress and advanced chip making after reports that a state-backed company has begun mass-producing sophisticated lithography machines. France and Spain are preparing emergency financial aid for communities devastated by the ongoing wildfires. Spain is set to declare the worst-hit areas as emergency zones, unlocking government support for families and businesses. In France, insurers will cover relocation costs for more than 200,000 evacuees, even if their homes escaped damage. French President Emmanuel Macron has warned that the wildfire season is far from over, despite signs that the blazes are beginning to stabilise. His words are spoken by a translator. It is difficult because we need to see two that we are faced with and never before seeing fire. We have a situation today which is the most difficult we have ever measured since the Second World War. Macron also announced support for thousands of businesses hit by the fires. Temperatures in France and Spain are due to climb back towards a peak of 41 degrees Celsius this week. President Donald Trump says the United States and Iran are holding talks to end their conflict, but warned that military strikes will resume if negotiations fail. Trump's remarks came after the US held off attacking Iran for a third straight day on Monday. Tehran, in turn, suspended retaliatory strikes on Gulf countries, including Kuwait. Speaking to reporters aboard Air Force One, Trump claimed the talks were only happening because the US had been hitting them very hard. They want to meet and we're meeting. We'll see what happens. There's a chance we can make a deal. Without what we did, they wouldn't be talking to us. They requested a meeting through their surrogates and directly. and we're meeting and, you know, good things can happen, I guess. Despite President Trump's optimism, the two sides have repeatedly appeared close to a deal during the conflict only for fighting to resume. It remains unclear whether Washington and Tehran are engaged in substantive negotiations. Iran's foreign ministry says while messages may be passed through mediators, no formal negotiations with the United States are currently taking place. So that's the geopolitics. Now to earnings. A return to growth at LVMH's fashion unit is being held back by the Iran war. The firm's fashion and leather goods division, home to the likes of Louis Vuitton, saw sales increase by just 1% last quarter as the conflict deterred wealthy customers. While sales growth was below estimates, LVMH's revenue increased for the first time in two years. The European luxury sector has been mired in an extended slump. Gucci owner Kering reports earnings today. They're also expected to be subdued. And just some more breaking news on earnings this morning. Mercedes downgrading its full year revenue forecast saying it now expects income slightly below last year That versus expectations of flat It had announced previously the German carmaker reported adjusted earnings of 2 billion euros in the second quarter That was above expectations. Backbench Labour MPs here in the UK are warning Prime Minister Andy Burnham against pursuing what they call punitive welfare cuts, saying that he risks a repeat of the rebellion that derailed his predecessor's plans. Several Labour MPs have told Bloomberg that any reforms must focus on helping people into work rather than cutting support, warning that they could refuse to back the legislation. Otherwise, the warnings follow Burnham's BBC interview in which he said that he wanted to reduce the welfare bill by making it harder for some people to claim benefits. The pushback comes as two new opinion polls put Labour ahead of or level with Nigel Farage's reform UK party for the first time since March last year. Meanwhile, the Prime Minister has pledged new military support for Ukraine during his first face-to-face meeting with President Vladimir Zelensky. Britain will supply its new stone cloak electronic warfare technology to help protect Ukrainian drones, which have become one of Kiev's most effective weapons against Russia. Zelensky called the meeting an important signal of support from Britain's new government. Our relationship with the UK is stronger than ever. And I thank Andy for his commitment to this partnership and for giving so much attention to defence and to our security. Zelensky met Andy Burnham aboard a Royal Navy aircraft carrier where the Prime Minister said he hopes to visit Ukraine soon. Zelensky is now heading to Washington for talks with President Trump, where he's expected to press for more Patriot missiles and tougher sanctions on Russia. Now, those are our top stories. Let's get to the market. So, stocks tumbling in Asia. The MSCI, Asia-Pacific Index, down by 3.1%. The COSPI down almost 10% this morning. It is only 7% above its 200-day moving average because of the significant drops that we've seen. In terms of other benchmarks in Japan and Taiwan, they're down more than 3% this morning. Stock futures for the US, for Nasdaq futures down eight-tenths of 1%. US stocks at 50 futures are only actually declining about a tenth of 1%. But can we really avoid a down session given the AI-related sell-off, the sell-off in chipmakers? In terms of other markets that we're thinking about, Brent crude futures, obviously key, $87.19 for Brent crude. currently down by 1.3%. We saw on Monday the biggest decline in more than three months for Brent crude. So let's see if that continues to hold. And one last thought, which is that bets are mounting, risks mounting, that the Fed may hike, it seems. So gold moving on the back of that, bullion trading down 0.9% of 1%. There's the markets. In a moment, more on what's driving that sell-off in tech stocks in Asia, plus how the European fashion marketplace Vinted is setting its sights on the American market. But first, another story that we've been reading this morning. I'm being uncomfortable in midlife. Abby McCloskey has been writing about this for Bloomberg Opinion. She points to one of the key factors in losing cognitive abilities as we get older is that we stop putting ourselves in situations where we're forced to learn. She's currently on a five-week stint of living in London. Welcome to Europe, Abby, with her family, which she says is giving her a reminder of what a learning curve feels like. She's been enrolling in new classes, figuring out how to use things like the washing machine in someone else's house and induction stove tops. And says that, look, despite the fact that it's difficult and she doesn't like feeling like a novice, there is a sense of achievement in feeling, you know, out of place and having to learn to keep up. And this is something that, you know, the science backs up. If you're learning more things at one time, it's a good source of mental rejuvenation. Yeah, I like that idea. I I hate reading these stories early in the morning when my brain is still feeling really pretty, you know, sticky, maybe not quite up to speed. If you had to learn something new, Stephen Carroll, what would it be? Oh, I was just talking about this with someone yesterday about the list of languages I'd like to learn. I would like to go back. I would like to complete my learning of Spanish and I would like to brush up on my Irish as well, which I did learn for 14 years, but sadly is buried somewhere in the back of my brain. Oh, excellent. I love that, learning new things about you. What about Mahjong and bridge or maybe something physical? I think that would be on my list. I think you'd have to have a weird combo of disciplines, new disciplines, I think, to really stretch yourself maybe mentally and physically. But yeah, I love this story, Abi McCloskey writing it for us. Plenty to think about, yeah. And we'll put a link to it in our podcast show notes as well. Let's turn back, though, to what's happening on markets, different kind of gyrations ripping through what we're seeing in particularly in chip stocks today. We've got our equities reporter, Winnie Sue, with us. Now, for more, let's get into, I suppose, one of the two big factors that is driving what we're seeing today, the circular funding fears resurfacing after some announcements from NVIDIA. What's the issue here? Yeah, exactly. Well, we have been hearing about these concerns since last year but it really is resurfacing as you just mentioned because of these massive spendings from the U hyperscalers Now how it works is basically you know the likes of NVIDIA providing these financial support to its partners, its customers, and they in turn will buy more chips from NVIDIA. And that is what we've been seeing from the likes of SK Group with NVIDIA, about $500 billion of commitment to do business together. With another example, just yesterday, we're hearing that NVIDIA in talks to help OpenAI by backstopping as much as $250 billion to lease this $500 billion worth of data center from SoftBank that is based in Ohio. So it really is blurring this line of Nvidia being a capex beneficiary and being a capex spender and the problem here is that it then will skew the underlying real demand for AI and potentially magnifying the losses if the AI story turns around and that's why we saw Nvidia down about five percent yesterday with credit risk spiking this five-year CDS at an intraday high yesterday and that is spilling over to the broader market in Asia chip sector that we're seeing today. Yeah, these credit default swaps are really important to, you know, they sort of show the credit pressure that's building. Look, there's another factor, though, too, that we have to think about. A report that a Chinese state-backed company has begun producing high-tech chip-making machines that companies like ASML specialize in. So this is really of interest, surely, in Europe. What do we know and why would it be such a big deal? Yeah, exactly. So the key point here is that they are mass producing these deep ultraviolet lithography machines. So we call it the DUV machines. They are, in fact, less advanced compared to ASML's extreme ultraviolet lithography tools, which we call EUV machines. But because they can mass produce it and they're aiming about five DUV machines this year, targeting 20 next year, that puts them in a good position to be able to pose a threat on ASML. And that's why we saw ASML stocks falling so much and the likes of Japanese manufacturers, Nikon and Tokyo Electron, also down more than 9% today. And the broader implication of this is that it's showing you how China is really ramping up their production capabilities for advanced chips. And that is coming after the memory giant CXMT had its debut yesterday, which turned it into the biggest listed company in onshore China. So in different aspects, when you pull together all these pieces of information, it's really showing you how the competition of these Chinese makers and manufacturers are really coming back into the global race. And that is why we're seeing how these other peers globally are falling today as well. And just briefly, Winnie, like we're, I suppose, wrapping up a couple of weeks where, not wrapping up perhaps, but we've seen a couple of weeks of pretty extreme volatility in these chip stocks in Asia. It feels like every day the story is either they're up a lot or they're down a lot. I mean, what does this tell us? Or I suppose how do we think about today's movements in the context of all that volatility? Yeah, well, today is pretty much a great example of just how volatile this market has become, right? We're looking at Cosby down some 10% and having already the exchange triggered about two circuit breakers and that it's triggering that big sell off in Asia as well with the benchmark headed for a technical correction down about 10% since June. Now, this is also exactly why some of these long only fund managers are still preferring to stay on the sidelines. I've talked to the likes of East Spring and even Fidelity. they say that they're keeping their trading sizes small and they need a bigger safety of margin. So basically, they need to see a bigger drawdown before they potentially buy into the dip, just because how volatile this market really has begun. So most likely because of the volatility, we're likely going to see investors staying away and only would be buying the dip until they see a bit more calmness in the market. Winnie, okay, very interesting. Thanks for being with us. Our equities reporter, Winnie Su. turned Europe 500 billion euro clothing industry upside down Now the company which is headquartered in Lithuania is planning to do the same for the US Our reporter Milda Shepetita joins us now from Vilnius for more Milda, good morning. Secondhand clothing sales are eating into the fashion business. But what's driving this global resale boom? Yes, indeed, the resale boom is real. It's no longer a niche market, but rather a sector that's eating into the fashion business. Analysts estimate that about 60% of global customers will be shopping resale this year, and the market will grow two to three times faster than the new fashion through next year. So the shift is really driven by economics. Shoppers want deals and sellers want extra cash. Years of inflation have made secondhand mainstream, especially for the younger generation, which no longer considers shopping secondhand a taboo or it doesn't carry a stigma. And the trend is picking up, especially when celebrities like Paris Hilton or Irish actor all must call openly discuss reselling on such platforms. So this is the sentiment that companies like Vinted are capitalizing on. Wow. So tell us about Vinted's growth in particular and how it's managed to capture the market in Europe. Why we're looking at Vinted more closely. The startup was founded in Lithuania about two decades back as a simple clothes swapping platform. But now it's grown into Europe's dominant customer fashion marketplace and is one of Europe's biggest success stories. investors say that Vinted has the potential to become the Amazon for second hand. The company is now valued at 8 billion euros and it helped sell almost 11 billion euros worth of goods last year. Now how Vinted built a platform that European rivals struggle to match is, as we mentioned in the story, Vinted's edge started with a somewhat counter-activative decision in the beginning. It scrapped seller's fees and started charging buyers instead. So that simple switch encouraged more people to list their items, creating more inventory, and that attracted more buyers and ultimately made it a profitable marketplace. It is now investing heavily into its own shipping network, payment system, customer support, software servers. And that's something that rivals struggle to replicate. So really a booming enterprise. But the next target is the United States. Why is this such a big test for Vinted? What does it mean for the company's potential IPO? Entering the U.S. market is the next major step for Vinted. the US sale resale market is known for being highly competitive and difficult to crack. So when the company entered the US in January and is now in early stage testing, the initial results are encouraging, the company says. But Vinted is under no illusion about how hard it will be to crack. We were openly told by the company that it's a big question if they will succeed or how long it will take. But if they do, this will be a big milestone both for Europe, for Lithuania, a small country on the eastern flank. Now, Vinted has been preparing for an IPO for the past few years and considers itself operational already. But what markets don't like is surprises. And until the U.S. entry becomes more predictable, the company doesn't want to commit to public date of the IPO. But that the ambition is there and that the ambition is there to build something bigger, much bigger, it's clear. The CEO told us or actually made a broader argument how Europe has produced very few tech giants in recent decades. He pointed out Spotify as one example. But in the meantime, the U.S. has been building multiple trillion dollar businesses. And Europe needs to catch up or risks becoming a dark place, as he put it. So Vindend is looking to become the next tech heavyweight and to put Lithuania on the global tech map. Thanks for listening to Bloomberg Daybreak Europe. If you're enjoying the podcast, give us a follow, leave a rating or review, and maybe send it to that one friend or colleague who's always trying to keep up with the news. And if one podcast today isn't enough for you, you can also listen to us live every weekday from 6am in London on DAB Radio, on TuneIn and on the Bloomberg Business app. Or if you've got a smart speaker nearby, just say, play Bloomberg Radio.
