BY COMFORT OGBONNA
Asian stocks declined on Thursday as a sharp sell-off in semiconductor companies overshadowed strong earnings from Taiwan Semiconductor Manufacturing Co. (TSMC), the world’s leading producer of advanced AI chips. At the same time, global bond markets gained support from softer U.S. inflation data that reduced expectations of an immediate interest rate increase from the Federal Reserve.
Oil prices moved lower after the United States completed its latest strikes on Iran, although crude prices remained significantly higher for the week as tensions in the Middle East continued to escalate. Washington has carried out attacks against Iranian targets, while Tehran has responded with strikes on U.S. military facilities in the region, increasing concerns over potential disruptions to energy supplies.
Brent crude futures fell about 0.5% to $84.50 a barrel, but remained up roughly 11% this week as investors continued to monitor developments in the Middle East and assess the potential impact on global oil markets.
The decline in Asian equities came despite a strong performance from TSMC, which reported a 77% increase in second-quarter profit, reaching a record level that significantly exceeded market expectations. The company, considered a key indicator of global AI chip demand, continues to benefit from massive investments in artificial intelligence infrastructure.
TSMC shares had gained 1.2% ahead of the earnings announcement, but the rise was not enough to offset broader weakness among semiconductor stocks across Asia. Investors appeared to focus more on concerns over already elevated valuations and whether future earnings growth can continue meeting extremely high expectations.
MSCI’s broadest index of Asia-Pacific shares outside Japan dropped 1%, while South Korea’s KOSPI index suffered a sharper decline, falling 6.2% as major chipmakers faced heavy selling pressure.
Samsung Electronics shares dropped 6.6%, while memory chip manufacturer SK Hynix fell 9%, contributing significantly to the weakness in South Korea’s market. Japan’s Nikkei index also declined, falling 3%, while Hong Kong’s Hang Seng Index moved against the regional trend and gained 1.8%.
Brian Heavey, an equity trader at JPMorgan, said investors were aggressively reducing exposure to memory and hardware stocks, noting that the semiconductor sell-off did not appear to be triggered by one specific negative development.
He said the market reaction reflected the extremely high expectations surrounding chip companies, meaning even strong earnings results may not be enough to satisfy investors.
The pressure on semiconductor stocks extended beyond Asia. Shares of Dutch chip equipment manufacturer ASML, the world’s leading supplier of advanced semiconductor production equipment, fell 0.4% overnight despite the company raising its 2026 sales forecast and announcing plans to increase manufacturing capacity.
On Wall Street, investors rotated away from semiconductor stocks and moved into large technology companies and banking shares following stronger-than-expected earnings from major financial institutions. However, Asian markets remained more vulnerable to semiconductor weakness because many of the region’s economies have a much larger dependence on chip manufacturers and technology supply chains.
European markets were expected to open slightly higher, with regional stock futures gaining around 0.2%, while U.S. stock futures remained mostly unchanged during Asian trading hours.
Meanwhile, financial markets continued reacting to weaker-than-expected U.S. inflation data. A softer producer price index (PPI) report for June followed a cooler consumer inflation reading released earlier, reducing concerns that the Federal Reserve could raise interest rates in the near term.
Markets have now significantly lowered the probability of an immediate Fed rate increase this month, with expectations falling to around 10% from 43% earlier in the month.
However, investors remain cautious because renewed increases in oil prices caused by Middle East tensions could eventually push inflation higher again. Higher energy costs could slow progress toward lower inflation if the conflict continues.
Bond markets responded positively to the latest inflation figures, with investors focusing on signs that price pressures are easing. Two-year U.S. Treasury yields rose slightly by 2 basis points to 4.1514% after falling sharply over the previous two trading sessions. Ten-year Treasury yields increased by 1 basis point to 4.5594% after also declining in recent days.
The weaker inflation outlook weighed on the U.S. dollar. The dollar index remained steady at 100.52 after falling 0.4% overnight to its lowest level since June 18.
The Japanese yen remained under pressure, trading around 162.15 per dollar, close to its weakest level in four decades. Investors continued watching for possible intervention from Japanese authorities to support the currency.
The British pound reached a two-month high amid expectations that Andy Burnham, who is expected to become the next Labour Party leader, could appoint a finance minister focused on maintaining fiscal discipline. Sterling was largely unchanged at $1.3532 after gaining about 1% overnight.
Gold prices declined 0.8% to $4,027 an ounce as investors balanced demand for safe-haven assets against shifting expectations for U.S. monetary policy.
Global markets are now closely watching developments in the semiconductor sector, inflation trends, and geopolitical risks as investors attempt to determine whether the current AI-driven market rally can continue while economic uncertainties remain elevated.
Original article
Comments