Asian Shares Fall as Chipmakers Stumble, Bonds Gain on Soft US Inflation
Market Movements and Economic Reactions in Asia
By Stella Qiu
Asian Markets React to Chipmaker Performance
SYDNEY, July 16 (Reuters) - Asian shares fell on Thursday as chipmakers stumbled ahead of results from bellwether TSMC, while bonds benefited from another benign reading on U.S. inflation that lessened the risk of an imminent rate hike.
Oil Prices Surge Amid Middle East Tensions
Oil prices, however, kept climbing as hostilities heated up in the Middle East. Washington continued striking Iran after reimposing a naval blockade of its ports, while Tehran warned of an "existential war" with America. Brent crude futures rose 0.6% to $85.45 a barrel, adding to this week's gain of 12%.
Focus on TSMC and Semiconductor Sector
All eyes are on the quarterly earnings from Taiwan Semiconductor Manufacturing Co's (TSMC), the world's largest manufacturer of advanced AI chips. The company is expected to notch a fifth consecutive quarter of record earnings, with a 59% surge in net profit for April-June.
However, investors are proving hard to please as shares of ASML, the world's dominant supplier of equipment needed to make high-tech computer chips, finished 0.4% lower even after it raised its 2026 sales forecasts and pledged a capacity boost.
Investor Sentiment and Market Spillover
"Seeing aggressive pullback in Memory/Hardware," Brian Heavey, an equity trader at JPMorgan, said in a note. "Don't think there's a smoking gun 'negative' headline driving semis/hardware selloff. I think just shows how high the bar is for semis earnings."
The selling spilled over to Asia. MSCI’s broadest index of Asia-Pacific shares outside Japan slid 1.7% as South Korea's KOSPI slumped 6.3% on weakness from Samsung, down 8%, and SK Hynix, down 11%.
Japan’s Nikkei dropped 3%. Taiwanese shares fell 0.5%, while China's Hang Seng Index gained 1.2%.
Central Bank Actions and Regional Impact
South Korea's central bank raised interest rates for the first time in 3-1/2 years to 2.75% on Thursday to stabilise a slumping won and counter persistent inflationary pressure. The decision was largely as expected.
Wall Street gained overnight as investors rotated out of semiconductors into Magnificent Seven stocks and banks after robust earnings from major lenders, but Asia is more vulnerable to the chip sell-off given its heavier exposure to semiconductor stocks.
Bonds and Currencies Respond to US Inflation Data
Bond Market Reaction
BONDS CHEER COOL INFLATION
Surprisingly soft U.S. PPI data for June added to the benign consumer inflation figures a day earlier, as markets now priced out the risk of an imminent rate hike from the U.S. Federal Reserve this month to just 10%, from 43% earlier in the month.
However, the pullback in inflation is likely only temporary, with oil prices climbing on the renewed Middle East hostilities. The Wall Street Journal reported President Donald Trump is leaning towards expanding U.S. military operations in Iran, including sending ground forces.
Bond investors, however, focused on cooler inflation data. Two-year Treasury yields edged up 2 basis points to 4.1493%, after falling 14 bps over the past two days. Ten-year yields were steady at 4.5593%, having been down 7 bps over the past two days.
Currency Markets and Gold
That pulled the dollar down, except for against the beleaguered yen. The dollar index was steady at 100.48, after falling 0.4% overnight to the lowest since June 18. The yen hovered at 162.08, not far from the 40-year low of 162.84 as speculators remain wary of Japanese intervention.
Sterling hit two-month highs on expectations that Andy Burnham, who is likely to be named new Labour Party leader on Friday, will pick a fiscally conservative finance minister. The pound was 0.1% higher at $1.3538, after surging 1% overnight.
Gold was steady at $4,055 an ounce. [GOL/]
(Editing by Christian Schmollinger)
