Asian equities fell Thursday, driven by chip stocks, as U.S.-China trade tensions rose. Meanwhile, the yen remained firm.
The U.S. dollar hovered near a four-month low, as Fed comments boosted chances of a September rate cut, lifting gold.
MSCI’s Asia-Pacific index fell 0.63%; meanwhile, IT stocks dropped 2.5%. Furthermore, South Korean and Taiwanese shares fell 1.5% and 2%, respectively.
The yen’s strength, along with a strong decline in tech companies, drove Japan’s Nikkei down more than 2%.
A report of potential US export curbs on advanced semiconductors to China triggered a sharp sell-off in chip stocks.
“I think this volatility spike is now leading to some broader risk reduction as investors worry about stretched positioning,” said Ben Bennett, Asia-Pacific investment strategist at Legal and General Investment Management.
European bourses expected a mixed open: Eurostoxx 50 futures down 0.14%, German DAX stable, while FTSE futures rose 0.5%.
Investor attention shifts to the ECB’s policy decision today; comments will be key in predicting the next rate cut.
Risk sentiment declined after Trump claimed Taiwan took “100% of our chip business” and should pay the U.S. for defense.
China stocks fluctuated; the Shanghai Composite dipped 0.12%, while the CSI300 rose 0.12% as investors awaited Beijing policy news.
Investors Eye Fed Rate Cut as Dollar Struggles, Yen Surges
Investors expect a 25 basis point rate cut in September as Fed officials noted progress towards the 2% inflation target.
Thus, the dollar struggles while the euro holds at $1.0934 and sterling remains at $1.3001, just below its one-year peak.
The dollar index, gauging the U.S. currency against six peers, rose 0.1% to 103.78, nearing Wednesday’s four-month low of 103.64.
The yen, suspected to be supported by Japanese authorities, hit a six-week high at 155.375 before settling at 156.
Tokyo reportedly purchased nearly 6 trillion yen last week to bolster the weak yen, which hit 38-year lows earlier this month.
The yen’s 9.5% drop against the dollar this year reflects the significant interest rate gap between the U.S. and Japan. Consequently, traders exploit this difference through carry trades, borrowing yen cheaply to invest in higher-yielding dollar assets.
Analysts, however, suggest Tokyo’s recent suspected actions could prompt traders to unwind their positions.
“It feels like the tide is shifting a little here, which is causing some discomfort for yen-funded carry traders,” said James Athey, fixed income portfolio manager at Marlborough Investment Management.
Gold rose by 0.34% to $2,466.62 per ounce, nearing its Wednesday peak of $2,483.60.
Oil prices increased, with Brent futures up 0.4% to $85.45 and U.S. WTI crude rising 0.7% to $83.43.
Click here for more news on Finance and Investing.