Market Jitters Amid US-China Trade Concerns; European Stocks and US Futures Decline

Global markets faced a turbulent day on Wednesday, as European stocks and US equity futures retreated amidst mounting concerns over stricter American trading restrictions on China, Bloomberg reported. The backdrop of this market unease was highlighted by a notable decline in technology shares, which pulled Europe’s Stoxx 600 lower. Leading the losses was ASML Holding NV, a Dutch company specializing in chipmaking machinery, which saw its shares plummet nearly 8%. Investor fears centered around potential export restrictions to China, despite the company reporting better-than-expected orders in the second quarter.

In the US, S&P 500 contracts dropped by 0.5%, while Nasdaq 100 futures fell by 0.9%. The MSCI Asia Pacific Index also struggled, with Tokyo Electron Ltd., a semiconductor equipment maker, recording its steepest decline in three months due to heightened US-China trade tensions.

The Biden administration's scrutiny over semiconductor technology exports to China intensified, prompting concerns among investors. Reports suggest that the administration is considering deploying severe trade restrictions, particularly targeting companies like Tokyo Electron and ASML.

In currency markets, the pound strengthened to its highest level of the day against the dollar. This followed UK inflation data for June, which held steady at the Bank of England’s 2% target for the second consecutive month. The report, however, revealed persistent price pressures in the services sector, prompting traders to scale back expectations of an August rate cut by the Bank of England.

Meanwhile, Treasury yields edged higher after declining on Tuesday, while the dollar remained stable. Investor sentiment remained mixed, supported by expectations of imminent Federal Reserve rate cuts and resilience in US retail data. However, concerns loomed over geopolitical uncertainties, particularly amid the increasing likelihood of a return to office for former President Donald Trump.

Vishnu Varathan, head of economics and strategy at Mizuho Bank Ltd. in Singapore, highlighted the complex dynamics influencing market movements. "Impending Fed easing should ideally support a rotation into smaller cap and tech stocks," Varathan stated. "However, the specter of ‘Trump 2.0’ introduces heightened uncertainty regarding geopolitics and trade."

Amid these fluctuations, the S&P 500 reached a new all-time high on Tuesday, spurred by a shift towards smaller US stocks. The Russell 2000 Index, which tracks smaller companies, posted its strongest performance since April 2020 with a 12% gain over the past five sessions.

In corporate news, Adidas AG saw a 5% rally after raising its annual profit outlook for the second time in three months. Similarly, Roche Holding AG surged up to 7.4% following promising early-stage results for its experimental weight-loss pill. On the flip side, Demant A/S shares plummeted by as much as 14% after the Danish hearing-aids group cautioned on its full-year growth following disappointing preliminary second-quarter results.