Asian Stocks to Fall as Chip Selloff Gains Steam: Markets Wrap

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(Bloomberg) — Asian equities were set for early declines following a selloff in technology stocks on concerns the US would impose tighter restrictions on chip sales to China.

Equity futures for Japan, Australia and Hong Kong all declined, with Tokyo contracts falling 2%, weighed down by a stronger yen and further fallout from heavy selling in chipmakers around the world. The S&P 500 fell 1.4% while the Nasdaq dropped 2.9%, its worst day since 2022.

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US chip giants Nvidia Corp., Advanced Micro Devices Inc. and Broadcom Inc. drove a closely watched semiconductor gauge down almost 7% — the biggest slide since 2020 — while in Europe, ASML Holding NV tumbled 11% even after the Dutch giant reported strong orders. A Wednesday plunge in Tokyo Electron Ltd. led losses in the Nikkei 225 Stock Average.

The Biden administration told allies it’s considering severe curbs if companies like Tokyo Electron and ASML keep giving China access to advanced semiconductor technology. The US is also weighing more sanctions on specific Chinese chip firms linked to Huawei Technologies Co.

The possibility of new chip restrictions “could indeed create the kind of selling that could be the catalyst for a tradable correction in the stock market,” said Matt Maley at Miller Tabak + Co. “Broad indices have become very overbought.”

The bond market saw small moves Wednesday. The Federal Reserve’s Beige Book showed slight economic growth and cooling inflation. Fed Governor Christopher Waller said the Fed is getting “closer” to cutting rates, but is not there yet.

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The yen was steady early Thursday after strengthening 1.4% against the greenback in the prior session.

The Biden administration is in a tenuous position. US companies feel that restrictions on exports to China have unfairly punished them and are pushing for changes. Allies, meanwhile, see little reason to alter their policies when the presidential election is just a few months away.

Meanwhile, Donald Trump, speaking in an interview with Bloomberg Businessweek, questioned whether the US has a duty to defend Taiwan — a major hub of semiconductor manufacturing.

“Normally, the impact of these types of headlines isn’t long-lasting, but in this case, we would note that semis have been underperforming the broader market for the last couple of weeks now,” said Bespoke Investment Group strategists. “So that’s something to watch.”

The tech underperformance is coming after a first half which saw megacaps propel the market higher, stretching their valuations and leaving them with a tougher setup for the rest of 2024.

“Much of this year’s equity gains have come from a handful of names currently under direct threat from the political arena,” said Jose Torres at Interactive Brokers. “An important question is if the rest of the market, which generally lacks thrilling tales on a relative basis, can offset the waning momentum in ‘Magnificent Seven’ stocks.”

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In Asia, data set for release includes June trade data for Japan, labor market figures for Australia and unemployment in Hong Kong.

West Texas Intermediate, the US oil benchmark, was steady after rising 2.6% Wednesday as investors digested news of wildfires in Canada that threaten 400,000 barrels a day of the country’s oil production.

Key events this week:

• ECB rate decision, Thursday
• US initial jobless claims, Philadelphia Fed manufacturing, Conference Board LEI, Thursday
• Fed’s Mary Daly, Lorie Logan and Michelle Bowman speak, Thursday
• Fed’s John Williams, Raphael Bostic speak, Friday

Some of the main moves in markets:

Stocks

• S&P 500 futures were little changed as of 7 a.m. Tokyo time
• Nikkei 225 futures fell 2%
• Hang Seng futures fell 0.3%
• S&P/ASX 200 futures fell 0.5%

Currencies

• The Bloomberg Dollar Spot Index fell 0.3%
• The euro was little changed at $1.0938
• The Japanese yen was little changed at 156.17 per dollar
• The offshore yuan was unchanged at 7.2720 per dollar

Cryptocurrencies

• Bitcoin fell 0.3% to $64,320.51
• Ether was little changed at $3,416.68

Commodities

• West Texas Intermediate crude rose 0.3% to $83.11 a barrel
• Spot gold was little changed

This story was produced with the assistance of Bloomberg Automation.

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