Market Analysis

Market Preparations: Anticipating Supply Chain Aftershocks

Amos Simanungkalit · 03 Apr 2024205 Views

The recent seismic event in Taiwan, described as the most powerful quake to hit the island in over 25 years, has underscored vulnerabilities in the global supply chain. Taiwan, responsible for approximately 90% of chipmaker TSMC's production, faces potential disruptions as a result.

Although TSMC's facilities are mostly located away from the quake's epicenter, concerns arise due to the delicate equipment housed within, crucial for manufacturing chips for various global firms. TSMC has initiated evacuations in some fabrication plants and assured that safety protocols remain intact, while further assessment of the impact is underway. The quake has unfortunately resulted in casualties, caused building collapses in Hualien, and its aftershocks have been felt as far as Shanghai and throughout Taipei.

The ramifications of severe damage to chip foundries would reverberate globally, amplifying the urgency behind U.S. President Joe Biden's push for domestic production to reduce dependence on Taiwan's output.

TSMC's shares dipped 1.4% in early trading, with other tech players like Apple supplier Foxconn and flat-panel maker Au Optronics also experiencing declines. Market sentiment, compounded by anticipation of remarks from U.S. Federal Reserve Chair Jerome Powell and forthcoming U.S. services and job data, led to broader market downturns.

Following robust Easter Monday manufacturing data from the U.S., bond market selling ensued, propelling benchmark 10-year yields beyond significant resistance levels. While yields stabilized around 4.35% during Asian trading, currency markets remained cautious, particularly concerning potential interventions by Japanese authorities. The yen maintained stability against the dollar at 151.55.

Additionally, attention turns to European inflation figures expected later in the session, with forecasts suggesting a slight cooling trend.

Key events likely to impact markets on Wednesday include Eurozone inflation data, U.S. non-manufacturing ISM figures, ADP employment data, and a speech by Fed Chair Powell.