Following a continued downturn in the US stock market, its longest losing streak since January, Asian equities are expected to open under significant pressure. This trend is anticipated despite mixed signals from future contracts across the region, with Japan, Hong Kong, and South Korea bracing for early losses, whereas Australia and China are seeing some gains. US futures remained stable after the cash market experienced a fourth consecutive day of decline, with the S&P 500 falling over 4% from the previous week's record high.
Attention is turning towards Asian chipmakers like Taiwan Semiconductor Manufacturing Co. (TSMC, Financial), Tokyo Electron Ltd., and SK Hynix Inc. in early trading sessions. This focus comes in the wake of ASML Holding NV, Europe's most valuable tech firm, reporting a significant drop in orders for the first quarter. Moreover, its sales in China are expected to suffer due to US export control measures, contributing to a broader decline led by Nvidia Corp. among US megacaps.
Market analyst Tony Sycamore from IG Australia in Sydney suggests that ASML's earnings report serves as a cautionary tale for the semiconductor industry, potentially affecting stocks with significant semiconductor exposure. This comes as investors grow increasingly cautious about the potential for further gains in US stocks, following a robust 10% rally in the first quarter, the strongest since 2019.
Despite recent pullbacks and a cooling from Federal Reserve Chair Jerome Powell on rate-cut expectations, the bond market saw a resurgence of interest, with two-year yields dipping below 5% alongside a $13 billion sale of 20-year bonds attracting strong demand. UBS Group AG's Wealth Management Americas CIO, Solita Marcelli, predicts the Federal Reserve will likely cut rates twice this year, starting in September, suggesting a positive outlook for quality bonds and a temporary nature for recent fixed income losses.
The US dollar experienced its first drop in six days amid ongoing concerns from Japan and Korea over their weakening currencies against the dollar, with the yen and won seeing significant declines this year. Meanwhile, the equity risk premium for US equities has dipped into negative territory, a situation not seen since the early 2000s, indicating a potential for increased corporate profits or the formation of a market bubble.
Despite the recent market downturn, fundamentals and technical trends remain supportive of equity markets, as noted by HSBC strategists led by Max Kettner. They point out that sentiment and positioning do not yet signal a major warning, even as real money investors have recently become more bullish on equities.
In commodities, oil prices fell more than 3% due to weaker Chinese industrial data and rising US crude inventories, while gold prices also saw a decline. Upcoming key events include earnings reports from Taiwan Semiconductor, various US economic data releases, and speeches from Federal Reserve officials.
