(Bloomberg) — Asian stocks were poised for early declines after a sell-off in technology stocks on concerns the U.S. would impose tighter restrictions on chip sales to China.
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Stock futures in Japan, Australia and Hong Kong fell, with Tokyo contracts falling 2%, weighed down by a stronger yen and the additional fallout from heavy selling at chipmakers around the world. The S&P 500 fell 1.4%, while the Nasdaq fell 2.9%, its worst day since 2022.
U.S. chip giants Nvidia Corp., Advanced Micro Devices Inc. and Broadcom Inc. cut the closely watched semiconductor gauge nearly 7% — the biggest drop since 2020 — while in Europe, ASML Holding NV fell 11% even after that the Dutch giant reported strong orders. A Wednesday drop in Tokyo Electron Ltd. led to losses in the Nikkei 225 Stock Average.
The Biden administration has told allies it is considering severe restrictions if companies like Tokyo Electron and ASML continue to give China access to advanced semiconductor technology. The US is also considering further sanctions against specific Chinese chip companies linked to Huawei Technologies Co.
The possibility of new restrictions on chips “could in fact create the kind of selloff that could be the catalyst for a tradeable correction in the stock market,” said Matt Maley of Miller Tabak + Co.
The bond market saw small moves on Wednesday. The Federal Reserve’s Beige Book showed slight economic growth and a cooling of inflation. Fed Governor Christopher Waller said the Fed is “closer” to cutting rates but is not there yet. Australian and New Zealand bonds remained steady on Thursday morning.
The yen remained little changed early Thursday after strengthening 1.4% against the dollar in the previous session.
The Biden administration is in a fragile position. American companies feel that restrictions on exports to China have unfairly punished them and are pushing for change. The Allies, however, see little reason to change their policies when presidential elections are just a few months away.
However, Donald Trump, in an interview with Bloomberg Businessweek, questioned whether the US has a duty to defend Taiwan – an important semiconductor production center.
“Markets may view the possibility of a second Trump administration positively,” said Sarah Bianchi of Evercore ISI. “However, it is worth noting that the core of Trump’s policy agenda this time around – raising tariffs and restricting immigration while largely prolonging existing tax cuts – points in the direction of lower growth and higher inflation.”
The weak tech performance comes after a first half in which megacaps drove the market higher, boosting their valuations and leaving them with a tougher setup for the rest of 2024.
“Much of this year’s capital gains have come from a handful of names currently under direct threat from the political arena,” said José Torres of Interactive Brokers. “An important question is whether the rest of the market, which generally lacks exciting stories in relative terms, can compensate for the declining momentum in the ‘Magnificent Seven’ stocks.”
In Asia, data expected to be released includes June trade data for Japan, labor market figures for Australia and unemployment in Hong Kong. In China, President Xi Jinping will reveal his long-term vision for the economy as he concludes a twice-a-decade reform conclave.
U.S. oil benchmark West Texas Intermediate rose again after rising 2.6% on Wednesday as investors digested news of wildfires in Canada that threaten 400,000 barrels a day of the country’s oil production.
Main events this week:
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ECB rate decision, Thursday
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U.S. Initial Unemployment Claims, Philadelphia Fed Manufacturing, Conference Board LEI, Thursday
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Fed’s Mary Daly, Lorie Logan and Michelle Bowman Speak, Thursday
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Fed’s John Williams and Raphael Bostic Speak Friday
Some of the main movements in the markets:
Actions
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S&P 500 futures were up 0.2% at 7:48 a.m. Tokyo time
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Nikkei 225 futures rose 2%
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Hang Seng futures fell 0.3%
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S&P/ASX 200 futures fell 0.5%
Coins
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The Bloomberg Dollar Spot index was little changed
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The euro was little changed at $1.0940
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The Japanese yen was little changed at 156.22 per dollar
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The offshore yuan was little changed at 7.2690 per dollar
Cryptocurrencies
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Bitcoin fell 0.4% to $64,281.5
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Ether fell 0.6% to $3,397.07
Titles
goods
This story was produced with help from Bloomberg Automation.
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