Trade fears hamper tech stocks, dollar falls amid rate cut talk

[July 18, 2024]  By Isla Binnie

NEW YORK (Reuters) -Global equity indexes mostly fell on Wednesday as possible U.S. trade curbs on chip equipment pulled tech stocks lower, while Treasury yields and the dollar both hit four-month lows as Federal Reserve officials indicated the central bank was getting closer to cutting interest rates.

The Japanese yen rose sharply, in a move suspected to be the result of the latest in a series of interventions from Tokyo to boost the long-depressed currency.

A U.S. interest rate reduction by September is seen as having a 98% probability, according to CME Group's FedWatch tool. Lowering rates is generally seen as a way to stoke economic growth.

"We are hearing a choral change in Fed speakers preparing the markets for a rate cut beginning in the later part of Q3," said Peter Cardillo, chief market economist at Spartan Capital Securities in New York.

Among the comments, Fed Governor Christopher Waller and New York Fed President John Williams both noted the shortening horizon toward looser monetary policy.

The benchmark S&P 500 equity index lost 78.93 points, or 1.39%, to 5,588.27 and the tech-heavy Nasdaq Composite lost 512.41 points, or 2.77%, to 17,996.93.

The Dow, which has underperformed the other two major U.S. stock indexes this year, ended higher on Wednesday and notched its third straight record closing high.

Chipmaker stocks slumped on a report that the United States is mulling restricting imports of technology to China, coupled with Republican presidential candidate Donald Trump saying key production hub Taiwan should pay the U.S. for its defense.

MSCI's gauge of global stocks fell 7.47 points, or 0.90%, to 823.78.

Shares of artificial intelligence chipmaker Nvidia, fell more than 6% after a rocky Asian session for Taiwan's TSMC, which closed 2.4% lower.

Investors earlier this week had formed a cautiously optimistic view of a second U.S. presidency for Trump, who is running against incumbent Democrat Joe Biden.

"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.

Traders work on the floor at the New York Stock Exchange (NYSE) in New York City, U.S., June 24, 2024. REUTERS/Brendan McDermid/File photo

YEN JUMPS

The yen has posted several outsized moves in recent days, appreciating sharply on Thursday and Friday from 38-year lows of 161.96 per dollar, sudden rallies that market participants said had the signs of Japanese government intervention.

Bank of Japan data released on Tuesday suggested Tokyo may have spent 2.14 trillion yen ($13.5 billion) intervening on Friday. Combined with the estimated amount spent on Thursday, Japan is suspected to have bought nearly 6 trillion yen via intervention last week.

The dollar index, which measures the greenback against a basket of currencies, fell 0.43% at 103.76, having hit a four-month low of 103.64 earlier in the session. The euro was up 0.34% at $1.0934.

Against the yen, the dollar weakened 1.33% to 156.23, after falling to as low as 156.09, a level last seen on June 12.

The softer dollar boosted demand for precious metals.

Spot gold lost 0.45% to $2,457.54 an ounce due to profit taking after hitting an all-time high of $2,482.29 earlier in the session.

Gold, priced in dollars, has a strong inverse relationship with the U.S. currency, as well as Treasury yields.

The yield on U.S. 10-year notes dipped 1.5 basis points to 4.152%, from 4.167% late on Tuesday. During the session, the yield hit 4.146%, its lowest since March 13.

Softer jobs data and easing inflation has brought Treasury yields down this month by boosting the odds of an impending rate cut.

Oil prices gained, with U.S. crude settling at $82.88 a barrel, up 2.63% on the day, while Brent rose to $85.01 per barrel, up 1.53% on the day.

(Additional reporting by Chuck Mikolajczak and Caroline Valetkevitch, Naomi Rovnick; Editing by Will Dunham, Gareth Jones and Jamie Freed)

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