ORLANDO, Florida, July 28 (Reuters) - European and U.S.

stock markets on Tuesday shrugged off a deep slump in Asia

earlier in the day, following another sharp fall in oil prices

and growing optimism around peace talks between the U.S. and

Iran, while investors also awaited key tech earnings and the

Federal Reserve's policy decision.

In my column today, I look at whether high and rising bond

yields will slam the brakes on Wall Street. Intuitively, there's

a good chance. But if rising borrowing costs are a reflection of

stronger nominal growth and a healthy economy, then not

necessarily.

If you have more time to read, here are a few articles I

recommend to help you make sense of what happened in markets

today.

1. Bar to Fed rate hike this week remains high even as

markets see a chance

2. U.S. bond market avoids big rate bets as inflation dims

Fed outlook

3. Central banks can't "see through" this many inflationary

risks: Mike Dolan

4. Market warning signals flare again as tech, inflation

fears intensify

5. Asian chip stocks slide as China competition fears rattle

AI trade

Today's Key Market Moves

* STOCKS: South Korea tanks 11%, Japan -4%. Europe +0.4%, UK

+0.9%. Dow +1% to within 1% of its record high.

* SECTORS/SHARES: Seven sectors on the S&P 500 rise, four

fall. "SOX" chip index -4.5% to 3-month low. Healthcare,

consumer staples +2%. Sherwin-Williams +8%, Coca-Cola and Boeing

+5%; Apple market cap briefly tops $5 trillion; Sandisk -14%,

now -55% in a month.

* FX: Dollar hits 1-month high but ends slightly lower. NOK

-0.5%, CLP +1%.

* BONDS: U.S. yields down 3-4 bps across the curve; another

weak U.S. auction, this time 7-year.

* COMMODITIES/METALS: Oil -5% to 2-week low, WTI and Brent

both down 16-18% since Thursday. Gold -1%.

Today's Talking Points

* AI CDS

The cost of insuring against many of the biggest of the Big

Tech firms defaulting is soaring to the highest in years. In

some cases, like Meta, Oracle, Nvidia and Amazon, the highest on

record. Granted, some of these companies had no debt on their

books at all until recently, but the speed and magnitude of the

move is quite something.

Will these firms ever default? Unlikely. Despite the growing

debt load to fund AI spending, they're still massive

cash-generating enterprises. Microsoft has a triple-A credit

rating, higher than the U.S. federal government. But the signal

CDS traders are sending is clear - AI capex is reaching bubble

territory.

* Rotation, rotation, rotation

The U.S. semiconductor index is technically in a bear

market, down 25% from its high on June 22. Yet the Dow is less

than 1% from its record high, and the S&P 500 is 2% away from

its peak. The resilience is impressive, especially considering

the churn and selling is most pronounced in the sectors and

megacap names that have powered Wall Street's rally until

recently.

Rotation has kept the main U.S. indices afloat. Financials

and healthcare hit record highs on Tuesday, while industrials,

consumer staples, utilities and materials are performing

strongly. The Russell 2000 small-cap index, only 3% off its

record high from earlier this month, is up 19% so far this year.

Earnings growth expectations, however, are still heavily skewed

towards tech and related sectors. They could still exert a

strong downward force on the broader market if they disappoint.

* Fighting the good family fight

We're less than 24 hours from one of the most uncertain Fed

rate decisions in years. The probability of the Fed staying on

hold vs raising rates has shifted to 70-30 from 60-40 on Monday,

but even pricing a 30% chance of a hike on the eve of the

decision is pretty extraordinary.

That's one consequence of abolishing forward guidance and

wanting to make every meeting "live". Fed Chair Kevin Warsh said

the debate around the FOMC table in June was like a "good family

fight" - a robust, frank and no-holds-barred exchange of views

can be expected again, although whether they all still love each

other at the end of it is an open question.

What could move markets tomorrow?

* Australia inflation (June, Q2)

* South Korea's SK Hynix earnings (Q2)

* European earnings, including Arm Holdings, UBS, Deutsche

Bank

* U.S. interest rate decision

* U.S. earnings, including Microsoft, Meta, Lam Research,

Procter & Gamble, Qualcomm, Starbucks

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