Cold shoulder: “There seems to be a mini ice-age in Asia this morning,” Deutsche Bank’s Jim Reid told clients this morning. “SoftBank is around 14% lower after the NYT suggested that OpenAI may delay its IPO until 2027. This follows a sharp decline for the Magnificent 7 (-2.54%) yesterday. The tech mega cap index moved deeper into correction territory … in response to demand surges for memory and storage, [and] the news played into broader concerns that AI data centers were generating inflationary pressures.”

Just a thought: If chip shortages are forcing tech companies to raise prices, that will feed through into their Q2 and Q3 revenues. So it is not entirely clear that this selloff is warranted. 

• S&P 500 futures were down 0.54% this morning. The index closed flat yesterday. 

• In Europe, the Stoxx 600 was down 0.83% in early trading, and the U.K.’s FTSE 100 was down 0.75% before lunch.

• Asia: South Korea’s KOSPI was down 5.81%. Japan’s Nikkei 225 was down 4.15%. India’s Nifty 50 was up 0.14%. China’s CSI 300 was down 3.03%. 

• Brent crude was $72 per barrel this morning, down from a high of $75 yesterday.

• Bitcoin was at $60K.

Chipmakers are cashing in on a “memory supply crisis,” Deutsche Bank says

One reason Micron’s blowout earnings can move the entire market is that the company’s fortunes reflect the industry's. In this mammoth AI investment cycle, the demand for chips of all kinds has sent prices through the roof for all makers of devices, as this chart (below) shows. It’s a “memory supply crisis” according to Marion Laboure and her colleagues at Deutsche Bank. 

“The AI squeeze is crowding out the economy's ability to serve the day-to-day needs of ordinary people. Qualcomm and AMD have both flagged memory constraints actively hitting consumer-device demand. We are already seeing it in U.S. purchasing price inflation (PPI): the electronic components and accessories, which captures semiconductor and memory-devices prices, rose 26.9% y/y in May, up from 5.9% y/y rise in January.”

• Apple raises prices on Macs, iPads by $200 or more on some models - WSJ

• Microsoft raises Xbox prices for third time in 13 months - Bloomberg

Vanguard: “Historic” AI investment cycle is on a par with 19th-century railroads

U.S. GDP growth in 2027 will be 3%, well above consensus forecasts, according to Vanguard’s Jumana Saleheen and Thiago Ferreira, and a large chunk of this will come from the billions going into building out AI infrastructure. 

“AI investment to date, however, suggests we are in the early stages of a profound economic shift that could reshape productivity over the coming decade,” they said. “This wave of investment resembles historic periods of large-scale capital expansion, such as the railroad buildout in the 19th century and the late-1990s technology boom.”

• Micron: How one chip stock reversed the global tech selloff, exposed AI’s ‘memory tax’ and made the case for an entire valuation regime change - Nick Lichtenberg

OUT OF PATIENCE

The Fed will reach the end of its five-year rope in September

Inflation in the U.S. is getting worse, according to Bank of America’s Claudio Irigoyen. “Core” inflation—the personal consumption expenditure number most closely watched by the Fed—came in at 4.1% for May. That’s a lot higher than the Fed’s current interest rate, which is 3.5%, implying that the Fed’s base rate isn't doing much to bring down inflation.

The problem, according to Irigoyen, is that the Fed has spent the last five years “looking through” short-term supply shocks such as the wars in Ukraine and Iran, in hopes that brief price rises were temporary. But as Irigoyen’s chart shows, the Fed has been tolerating “temporary” for the past five years.

“While one-offs are partly to blame, and tariffs should roll off, most of the FOMC seems to be losing patience after 5 years of high inflation and more recurrent supply shocks,” he told clients. That explains why a plurality of traders in the CME Fedwatch futures market now see a 0.25% rise in rates coming in September.

ONE BIG THING

Ray Dalio: The U.S. just had its ‘Suez moment’—which history says could end an empire

In late October 1956, Britain and France—alongside Israel—invaded Egypt after President Gamal Abdel Nasser nationalized the Suez Canal, the vital trade artery connecting Europe to Asia. Militarily, the operation was a success. Within days, Anglo-French forces controlled the northern portion of the canal, but it unraveled off the battlefield, Fortune’s Nick Lichtenberg writes.

The U.S., alarmed by the unilateral action and unwilling to allow its allies to destabilize the Cold War equilibrium, applied crushing pressure. Washington threatened to withhold emergency IMF loans. The British pound came under speculative attack. It was financial warfare, and it worked. British Prime Minister Anthony Eden, facing a currency crisis, withdrew from Egypt in humiliation within weeks. The military had won. The empire had lost. And what followed was a cascade that Bridgewater Associates founder Ray Dalio describes as the classic sequence of imperial decline: allies stopped deferring to London; creditors reassessed British debt; the pound sterling—which had served as the world’s reserve currency for over a century—began its long retreat.

MORE FROM FORTUNE

Everyone agrees that you hate AI, but only Mark Cuban sees why Silicon Valley is powerless to fix it - Nick Lichtenberg

Alan Greenspan said 3 years with Gerald Ford beat 18 at the Fed. His death at 100 raises the question: was he right? - Simon Bowmaker and Paul Wachtel

Meet Micron, the under-the-radar chipmaker that just reported a 346% sales surge and helped stop a global AI selloff - Marco Quiroz-Gutierrez

Washington gutted the office that manages your student loans. Next week, it has to reinvent them - Jacqueline Munis

The bond market knows something about the $39 trillion national debt that Washington doesn’t - Eva Roytburg

Private equity gets cut of two of Taylor Swift’s biggest pop hits through Max Martin’s catalog sale - Mia Osmonbekov

CHART OF THE DAY

The disastrous effect of Brexit

Britain’s momentous decision to leave the E.U. is 10 years old this year. James Moberly and Sven Jari Stehn of Goldman Sachs have been tracking its effect, and discovered that it turned out worse than their initial estimates. “Real GDP is around 6% below its counterfactual path, more than our previous 5% estimate two years ago,” they said in a recent note. Other research generally finds the hit is in the 6-8% range, they say. One obvious reason: With the U.K. losing its free access to its nearest, biggest, and richest trading partner, “goods trade volumes have underperformed by 10-15% since the referendum,” they wrote.

• Not significant: “The U.K. job market currently has open positions for: the Prime Minister, Doctor Who, and James Bond." –The gossip newsletter Popbitch.

NUMBER OF THE DAY

6.5%

The amount of GDP growth forecast to be created by increased spending on defense, according to Panmure Liberum’s Joachim Klement. Germany has earmarked €1 trillion for fiscal stimulus over the next 10 years, half of which will go on defense. That is the equivalent of an additional 25% on top of German GDP over a decade. “The German Council of Economic Experts went through the German budget line by line to see how much of this fiscal stimulus is wasted,” Klement wrote on his Substack. “About half is wasted in the form of accounting gimmicks and government consumption that doesn’t boost growth. But even so, Germany will experience a GDP growth boost of about 6.5 percentage points in the next seven years or almost one percentage point of extra GDP growth per year.”

THE FRONT PAGES TODAY

Jamie Dimon upends succession race at JPMorgan again - FT

Red Lobster’s Ultimate Endless Shrimp promotion described as a ’car crash for the company, lawsuit says - CNBC

Trump administration asks OpenAI to limit next model release - Axios

How Iran devastated an American naval base—and caused a U.S. recalculation - WSJ

Traffic flows through Hormuz despite shock container ship attack - Bloomberg

OpenAI leans toward waiting until next year for IPO - NYT

Ex-Facebook policy chief sues Meta to overturn order barring her from speaking about explosive memoir - NY Post

QUOTE OF THE DAY

On SpaceX’s new $25 billion bond sale:

“The guy just got $70 billion of funny money to play with to get us to space… Of course, bond investors are not the same as equity investors. Equity investors, you can take them to Mars. Bond investors are, like, ‘where is my coupon?’”

—Ludovic Subran, chief investment officer at Germany’s Allianz, in the FT.

ONE MORE THING

What happened when TIAA’s CEO discovered her father didn’t have a 401(k)

TIAA CEO Thasunda Brown Duckett’s job is to persuade you to max out your 401(k), not simply because TIAA is a provider of retirement savings accounts, but because it’s one of the best financial deals available to anyone: 401(k)s shield your money from taxes, usually come with a cash-match from your employer, and if you invest sensibly your gains will compound forever.

It’s a shame her dad didn’t know that. Duckett told Fortune that after she graduated college she discovered that her father, who worked at a warehouse and drove trucks—wouldn’t receive enough from his pension to live out retirement comfortably. He had access to a 401(k) through his employer, but the account sat empty. 

“I’m like, ‘Dad, this is not enough money for retirement’…He never contributed $1. That’s 30-plus years of compounding that never got compounded.”

She persuaded him to start using it immediately. “Fast forward, he got to see the benefit of it, Duckett said. “But he also felt bad that he could have changed the course of his life if he would have been able to know that that benefit was for him, too.”