Europe Set to Extend Tech-Led Stock Losses in Asia: Markets Wrap

(Bloomberg) — European stock futures pointed to a slightly weak open, following losses in Asian equities as a global tech selloff continued on concerns over tight US restrictions on chip sales to China.

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The Euro Stoxx 50 contract shed 0.1%. after Japan and South Korea led declines in Asia, where the Topix index fell as much as 1.5%. Tokyo Electron Ltd. faced the brunt of selling for a second day, dropping almost 11%. Taiwan Semiconductor Manufacturing Co. lost as much as 4.3%.

Hong Kong and mainland Chinese shares bucked the trend, with modest gains as investors braced for the conclusion of a key four-day Communist Party conclave on reform. US futures edged higher after the S&P 500 fell 1.4% and the Nasdaq dropped 2.9% to record its worst day since 2022.

A dollar index traded near the lowest level in two months. Treasuries were steady in Asia after small moves on Wednesday.

The latest rout in chip stocks came after Bloomberg reported that 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 tech underperformance followed 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.

“Market participants seem to find the reasons for some unwinding in tech, with talk of further trade restrictions on China challenging the sector’s demand outlook,” said Jun Rong Yeap, market analyst at IG Asia. “Given that the ‘laggard trade’ theme is just starting, the unwinding in tech may have more room to go.”

On Wednesday, 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.

“I won’t immediately abandon the tech trade but there are some concerns over valuation,” John Woods, chief investment officer for Asia at Lombard Odier told Bloomberg TV. “I think there are opportunities outside of tech.”

The yen was steady after rising 1.4% against the greenback Wednesday. The Bank of Japan is unlikely to raise interest rates this month and will instead cut its bond buying a little more than expected to avoid any fueling of yen weakness, according to a former executive director at the central bank.

In the US, 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.

The European Central Bank is expected to keep interest rates steady on Thursday, preferring to await further proof of progress on inflation before adding to June’s initial cut.

Among the major economic data released in Asia Thursday, Australia added more than twice the number of jobs economists expected last month, while Japan’s exports grew for a seventh consecutive month in June.

In the corporate world, Novartis AG raised its profit forecast for the second time this year as sales climbed for its blockbuster psoriasis and heart failure treatments. Warner Bros Discovery Inc. is considering splitting its streaming and studio businesses from legacy TV, one of several options intended to boost its share price, the Financial Times reported.

West Texas Intermediate, the US oil benchmark, gained again 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