Recent seismic activity in Taiwan, the most significant in over two decades, has put the global supply chain, particularly in the semiconductor sector, under stress.
Taiwan is a critical hub, responsible for nearly 90% of the semiconductor manufacturing by TSMC (TSM, Financial). Despite the earthquake's epicenter being located on the opposite coast to most of TSMC's facilities, the sensitive nature of the manufacturing equipment raises concerns about potential disruptions in the supply of chips to international companies.
TSMC has initiated evacuations at some of its production sites, confirming that its safety protocols are effectively in place. The earthquake resulted in four fatalities, the collapse of structures in Hualien County, and was felt as far as Shanghai, with aftershocks causing unease in Taipei.
The vulnerability of chip foundries to such natural disasters underscores the critical nature of diversifying production locations, a strategy strongly advocated by U.S. President Joe Biden to mitigate reliance on Taiwanese semiconductor output.
In response to the quake, TSMC's shares saw a decline of 1.4% in early trading. Additionally, Foxconn (HNHPF, Financial), a key supplier to Apple (AAPL, Financial), experienced a drop in its stock value by over 2%, and Au Optronics (AUO, Financial), a manufacturer of flat panels, saw its shares decrease by 1.7%. The broader market also felt the impact, with investors on edge as they anticipate updates from U.S. Federal Reserve Chair Jerome Powell and upcoming U.S. services and employment data.
Following unexpectedly robust U.S. manufacturing data on Easter Monday, the bond market witnessed a sell-off, propelling 10-year yields beyond significant resistance levels, which triggered further selling. However, the yields have stabilized at 4.35% in Asian trading sessions on Wednesday.
Meanwhile, the foreign exchange market remains cautious, particularly regarding the Japanese yen, which holds steady at 151.55 against the dollar, amid speculation of potential intervention by Japanese authorities.
Later today, European inflation data is anticipated, with expectations leaning towards a slight decrease.
Today's key market influencers include Euro zone inflation rates, U.S. non-manufacturing ISM, ADP employment figures, and a scheduled speech by Fed's Powell.
