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Market Analysis

Chipmakers Hit Hard by U.S. Recession Concerns
Amos Simanungkalit · 156.9K Views

16

 

Shares in semiconductor companies experienced a dramatic decline on Monday amid a global market sell-off, with Japanese stocks plummeting over 12% due to escalating concerns about a potential U.S. recession.

Investors, worried about economic growth, shifted away from riskier assets, anticipating that a series of rapid rate cuts might be necessary. This led to a significant increase in safe-haven currencies such as the yen and Swiss franc, as investors unwound crowded carry trades, potentially selling profitable positions to cover losses elsewhere. The severity of the sell-off prompted circuit breakers to be activated across Asian markets.

In premarket trading, semiconductor stocks, which had previously surged due to the AI boom, saw steep declines. Nvidia (NASDAQ) fell 9%, while Microsoft (NASDAQ), Amazon (NASDAQ), and Intel (NASDAQ) dropped 5%, 4%, and 4.6%, respectively.

Apple Inc (NASDAQ) saw a 6.5% decrease, Dell Technologies Inc (NYSE) dropped 7.6%, and Meta Platforms Inc (NASDAQ) fell by 5%.

The sell-off extended beyond chipmakers, with Nasdaq 100 futures falling 4.7% and S&P 500 futures declining 2.8%, indicating a broad global market downturn. EUROSTOXX 50 futures were down 2.1%, and FTSE futures fell 1.2%. Japan's Nikkei experienced a drastic 12.4% drop, hitting seven-month lows and marking a level of decline not seen since the 2011 financial crisis.

The MSCI's broadest index of Asia-Pacific shares outside Japan fell 4.2%. Chinese blue-chip stocks were relatively resilient, decreasing by only 0.5%, aided by an increase in the Caixin services PMI to 52.1.

Japanese 10-year bond yields dropped sharply by 17 basis points to 0.788%, the lowest since April, as markets reassessed the likelihood of another rate hike from the Bank of Japan.

U.S. Treasury bonds saw increased demand, with the 10-Year yield falling to 3.767%, the lowest since mid-2023. The 2-Year yield dropped to 3.818%, raising the possibility of an inverted yield curve, a pattern often associated with recessions.

Following a weak July payrolls report, markets are pricing in a 78% chance that the Federal Reserve will implement a 50 basis point rate cut in September. Futures suggest a total of 122 basis points in cuts for the year, with rates expected to be around 3.0% by the end of 2025.

Goldman Sachs analysts have increased their 12-month recession odds to 25%, although they believe the risk is somewhat mitigated by the Fed's potential for policy easing. They now expect quarter-point cuts in September, November, and December.

JPMorgan, however, is more pessimistic, forecasting a 50% chance of a U.S. recession and anticipating a 50 basis point cut in September, followed by another in November.

The sharp decline in Treasury yields has overshadowed the usual safe-haven appeal of the U.S. dollar, which fell 1.1% against a basket of major currencies. The dollar decreased by 2% against the yen to 143.10 and fell 1.9% against the euro to 156.35 yen. However, the euro remained steady against the dollar at $1.0934.

Investors are also speculating that other major central banks will adopt more aggressive easing policies, with the European Central Bank expected to cut rates by 67 basis points by Christmas.

In the commodities market, gold traded relatively stable at $2,431.62.

 

 

 

Paraphrasing text from "Investing" all rights reserved by the original author.

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