Wall Street set for weak open after chipmaker sell-off
"Trump trade" is on, investors say
Sterling strengthens as UK inflation rises again
Dollar drops versus yen on Tokyo intervention talk
(Adds bullet points, updates prices)
Geopolitical risks weighed on Wall Street on Wednesday after U.S. presidential candidate Donald Trump sounded lukewarm about defending Taiwan, sending chipmakers' shares lower and helping propel gold prices to record highs.
Futures contracts ESc1 tracking the U.S. S&P 500 equity benchmark equity index .SPX dropped by 1% after the index hit a record high in the previous session.
Shares in artificial intelligence chipmaker Nvidia NVDA.O , fell 3.1% in pre-market trading after a rocky Asian session for Taiwan's TSMC 2330.TW , which closed 2.4% lower.
The Netherlands' ASML ASML.AS , the largest equipment supplier to chipmakers, dropped as much as 7.7% in European morning trade.
MSCI's broad index of world shares. MIWO00000PUS was flat.
The tech mood soured after Trump questioned U.S. support for Taiwan in an interview with Bloomberg Businessweek, saying the closely monitored island that China claims as its own territory should pay for U.S. protection.
U.S. and Taiwanese officials have claimed for many years that a Chinese invasion of Taiwan would heavily disrupt global trade and high-tech supply chains.
Before Wednesday, markets had formed a cautiously optimistic view of a second presidency for Republican property tycoon Trump, who political betting sites tip to beat incumbent Democrat Joe Biden in the November 5 battle for the White House.
"Many strategists have suggested (Trump) is bullish for equities, and I'm just not sure about that," said Benjamin Melman, global chief investment officer at Edmond de Rothschild Asset Management.
"In terms of risk premium, today the market is adding a clearer reading."
While Trump's plans for Taiwan remain unclear, he has already signalled reduced U.S. support for strategic allies by picking Ohio Senator J.D. Vance, who opposes military aid for Ukraine, as his running mate.
CURRENCY SWINGS
In foreign exchange markets the dollar lost more than 1% against the yen JPY=EBS as fresh data from the Bank of Japan
suggested
Tokyo was spending heavily on buying the currency to drag it off multi-decade lows.
The currency pair traded at 156.4 yen per dollar, having last week crossed the 160 mark that investors view as Japanese authorities' trigger for intervention.
Sterling GBP=D3 touched a year-high of $1.3032 after data on Wednesday showed the annual rate of British inflation held at 2% in June against forecasts for a 1.9% increase and traders pared back their bets for a Bank of England rate cut in August.
Spot gold XAU= rose 0.2% to an all-time high of $2,473/29 per ounce on haven buying, and as increased expectations for U.S. interest rate cuts added to the pressure on the dollar.
Gold, priced in dollars, has a
strong inverse relationship
with the U.S. currency, as well as Treasury yields.
Commonwealth Bank of Australia commodity strategist Vivek Dhar said the gold price may even overshoot his existing target price of $2,500/oz by the end of the year.
Fed funds futures
0#FF: have fully priced a U.S. rate cut for September, followed by two more before the end of January 2025. FEDWATCHFederal Reserve Chair Jerome Powell on Monday
said
he had more confidence that consumer prices were coming under control.
Ten-year Treasury yields US10YT=RR were little changed on the day at 4.173%, around a four-month low. Two-year yields US2YT=RR edged up to 4.461%.
Germany's 10-year bund yield, a benchmark for European debt markets, was close to its lowest in three weeks at 2.42%.
Bond yields fall as prices rise.
Elsewhere, oil prices were steady, with Brent crude futures LCOc1 0.2% higher at $83.94 barrel and U.S. crude futures CLc1 gaining 0.4% to trade at $81.10.
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