US-China Trade Tensions Hit Chip Stocks Hard

The US considering tighter curbs on chip exports to China has triggered a significant sell-off in tech shares, with chip stocks losing over $500 billion in market value. ASML led the decline in Europe's tech index, while TSMC shares in Asia fell over 6% ahead of its earnings report. The European Central Bank meeting later today is expected to keep rates steady, with focus on potential rate cut clues.

Equities

The FTSE 100 closed 0.3% higher on Wednesday as geopolitical risks boosted defensive sectors. Stronger-than-expected UK inflation data, which held at 2% versus an estimated 1.9%, reduced the likelihood of immediate rate cuts from the Bank of England. Energy stocks rose 0.8%, driven by gains in oil prices and a reported decline in US oil stockpiles.

Antofagasta saw a significant decline, falling 6.1% after the Chilean miner forecast full-year copper output at the lower end of its guidance range. The mid-cap FTSE 250 dipped 0.6%, with Genus tumbling 10.8% following its forecast for 2024 adjusted pre-tax profit in line with market views and a lower-than-expected adjusted operating profit for 2025.

In the US, the S&P 500 and Nasdaq dropped sharply due to falling microchip shares amid concerns about escalating US-China trade conflicts. The Philadelphia SE Semiconductor index dropped 6.8%, its biggest one-day fall since March 2020. Megacap tech stocks, including Nvidia and Apple, also saw declines, contributing to the Nasdaq's 2.8% drop and the S&P 500's 1.4% slide.

The Dow Jones Industrial Average bucked the trend, rising 0.59% and logging its third consecutive record closing high, supported by gains in Johnson & Johnson, UnitedHealth Group, and Intel Corp. Despite the broader market downturn, Intel's defiance of the chip sector's slump helped lift the Dow.

The Russell 2000, which had surged 11.5% over the previous five sessions, snapped its five-day winning streak, indicating a shift in investor interest towards more undervalued stocks and sectors. The CBOE Market Volatility index hit its highest level in six weeks, reflecting growing investor anxiety.

Forex & Commodities

The yen surged on Wednesday amid speculation of Bank of Japan intervention to support the currency, which has seen significant movements from its 38-year lows of 161.96 per dollar. Market participants suspect Tokyo may have spent around 6 trillion yen on intervention last week. The dollar weakened 0.32% against the yen, falling to 156.25, the lowest since June 12. The dollar index dropped 0.43% to 103.76, hitting a four-month low as Federal Reserve officials indicated a possible rate cut approaching.

Sterling strengthened 0.32% to $1.3006, hitting a one-year high of $1.3044 following UK inflation data showing a slight rise to 2%, against forecasts of 1.9%.

Gold prices reached an all-time high, driven by optimism for a September rate cut from the Fed and a weaker dollar. Spot gold dropped 0.6% to $2,454.98 per ounce after hitting $2,483.60 earlier. US gold futures fell 0.3% to $2,459.90 per ounce.

Oil prices extended gains, with Brent futures rising 0.7% to $85.66 a barrel and US West Texas Intermediate crude gaining 0.9% to $83.60. This was buoyed by a larger-than-expected decline in US crude stocks, which fell by 4.9 million barrels last week, surpassing analyst expectations.