Asian equities may face downward pressure following their U.S. counterparts, with significant losses in the Nasdaq as the technology sector lagged. This underperformance was particularly driven by semiconductor stocks, affected by disappointing earnings from ASML, and by technical trades in anticipation of risk rebalancing ahead of Friday’s options expiry. Additionally, trade tensions between the U.S. and China are back in focus after President Biden proposed higher tariffs on Chinese steel. This development coincides with a 3.6% surge in iron ore prices, fuelled by optimism over a potential increase in Chinese steel production as demand strengthens. Notably, there has been a significant recovery in steel demand for construction, especially in China’s mid-western regions. With U.S. elections approaching in the second half of the year, sensitivities around trade could influence both risk assets and metal prices, reminiscent of fluctuations seen during the Trump-era U.S.-China trade war.
In FX markets, the U.S. dollar declined as it tracked lower U.S. yields, benefiting the yen, franc, and euro. However, the Antipodean currencies performed well despite a generally risk-averse mood in trading. Geopolitical news was limited, with reports indicating a potential Israeli response to Iran was postponed, leaving the timing and nature of the response uncertain. On the forex front, the yen appreciated against the dollar, with USD/JPY remaining above 154.00, supported by the dip in U.S. yields. As markets in the U.S. approached closing, Japanese officials highlighted ongoing discussions with the U.S. and other nations regarding Japan’s stance on forex and financial markets but provided no specific commentary on recent currency movements or potential interventions. A weaker yen is generally beneficial for Japanese equities, while a strong currency tends to pressure the stock market. Attention is now turning to upcoming Federal Reserve speakers early today, with significant forex options expiring and U.S. traders preparing for Friday’s expiry. The markets are also focused on the latest U.S. data, including jobless claims, existing home sales, and the Philly Fed business index, to gauge any potential shifts that might necessitate adjustments in the Fed’s interest rate strategy.
