Asian stocks began the week on the back foot, tracking last week’s Wall Street slide in the wake of the IT meltdown that hit banks, stores and airlines, with investors largely unruffled by Joe Biden’s withdrawal from the US presidential race.
Chip-related stocks took the brunt of the hit, though conversely Chinese tech firms’ reputation was boosted by the Microsoft-linked chaos which in turn lifted Hong Kong’s Hang Seng.
But the territory’s bourse was an outlier as Japan’s Nikkei share average led a broader decline, ending at a three-week low and extending its decline to a fourth session.
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The Nikkei fell 1.16% to 39,599, its lowest close since June 28, in its longest losing streak since October last year. The broader Topix was also down 1.16% to 2,827.53.
Chip-equipment maker Tokyo Electron fell 2.57% to drag the Nikkei the most. Chip-testing equipment maker Advantest lost 3.53% and silicon-wafer maker Shin-Etsu Chemical slipped 2.15%.
And heavy industry maker IHI fell 3.86%, as investors sold stocks that had rallied on higher chances of Donald Trump winning the US presidential race, in so-called “Trump trades”.
China stocks declined as investors dumped banking and energy shares after President Xi Jinping unveiled policy goals that prioritised technology supremacy, while the yuan weakened and bond yields fell after China’s surprise interest rate cuts.
There was little appetite for risk-taking after US President Joe Biden decided to end his reelection campaign on Sunday.
China’s blue-chip CSI300 Index fell 0.68%, while the Shanghai Composite Index lost 0.61%, or 18.09 points, to end at 2,964.22. The Shenzhen Composite Index on China’s second exchange edged down 0.10%, or 1.58 points, to 1,608.49.
China’s financial stocks led the declines as Beijing vowed to reform the sector to aid the real economy. Investors also expect thinner margins for banks as authorities push for lower borrowing costs.
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Investors also dumped Chinese energy shares. An index tracking the sector slumped more than 3%, led by oil giants CNOOC and PetroChina.
However, the Hang Seng Index gained 1.25%, or 218.20 points, to 17,635.88, thanks to its China tech stocks.
Elsewhere across the region, in earlier trade, Sydney, Seoul, Singapore, Mumbai, Wellington and Manila all fell.
MSCI’s broadest index of Asia-Pacific shares outside Japan lost another 0.7%, having shed 3% last week. Taiwan had another tough session with a loss of 2.3% amid concerns about US restrictions on chip sales.
Investors seemed prepared for news President Biden would drop out of the election race and endorse Vice President Kamala Harris for the Democratic ticket.
Markets took the news in their stride, with S&P 500 stock futures nudging up 0.1%, while Nasdaq futures added 0.2%. Futures for 10-year Treasuries rose 2 ticks, while 10-year bond yields dipped 2 basis point to 4.22%. Eurostoxx 50 futures added 0.5%, while FTSE futures firmed 0.4%.
A packed week of corporate earnings will see Tesla and Google-parent Alphabet kick off the season for the “Magnificent Seven” megacap group of stocks. Others reporting include General Electric, General Motors, Ford and Lockheed Martin.
The tech sector is projected to increase year-over-year earnings by 17%, while profit for the communication services sector is seen rising about 22%.
US Dollar Gives Back
Europe’s biggest banks also report this week, with eyes on whether the gains from higher interest rates have run out of steam and if recent political drama is weighing on sentiment.
A busy week for economic news will culminate with the Federal Reserve’s favoured inflation measure out on Friday. The core personal consumption expenditures index is seen rising 0.1% in June, pulling the annual pace down a tick to 2.5%.
Markets are wagering heavily that a benign outcome will firm the case for a September rate cut, which futures are pricing as a 97% chance.
Also due are figures for advance gross domestic product that are forecast to show growth picking up to an annualised 1.9% in the second quarter, from 1.4% in the first.
In currency markets, the dollar gave back just a little of last week’s safe haven gains as the euro edged up 0.1% to $1.0886. The dollar was a fraction softer on the Japanese yen at 157.27.
In commodity markets, gold held at $2,406 an ounce and short of last week’s record high of $2,483.60.
Oil prices inched higher, with scant sign of progress on a ceasefire deal in Gaza as Israeli forces battled Palestinian fighters in the southern city of Rafah on Sunday.
Key figures
Tokyo – Nikkei 225 < DOWN 1.16% at 39,599.00 (close)
Hong Kong – Hang Seng Index > UP 1.25% at 17,635.88 (close)
Shanghai – Composite < DOWN 0.61% at 2,964.22 (close)
London – FTSE 100 > UP 0.52% at 8,197.85 (0934 BST)
New York – Dow < DOWN 0.93% at 40,287.53 (Friday close)
- Reuters with additional editing by Sean O’Meara
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