17-18 July Market Movers: Chip Stocks, Forex & Trump

A plethora of events have shifted the US markets in the past couple of days, as markets ranging from forex to stocks and indices made the headlines. 

Factors like the Trump rally, rate cut optimism, and trade tensions have strained some markets while bolstering others. Let’s take a closer look:

Chip Stocks Under Pressure

Chip stocks, which have recently garnered significant attention due to a surge in demand for artificial intelligence (AI), faced less-than-rosy news on Wednesday, July 17th. Leading chip companies like NVIDIA (NVDA) and TSMC (TSM) saw their stock prices plunge amid rising US-China geopolitical tensions. 

On Wednesday, Bloomberg reported that the Biden administration is considering a “wide-sweeping rule to clamp down on companies exporting critical chip making equipment to China.” In other words, the US is planning to impose stricter controls on American companies sharing chipmaking technology with China. These potential new restrictions continue the trend of the US and many European countries imposing limitations on China, which have already impacted tech giant NVIDIA’s sales in China, causing them to drop by 19% in fiscal 2023 and 14% in fiscal 2024.

Interestingly, even ASML (ASML.AS), which reported better-than-expected Q2 earnings, saw its stock drop that day. This decline may be largely attributed to the fact that about 49% of the company’s sales come from China, highlighting the potential risks for ASML and its peers if trade tensions escalate further. Conversely, Intel (INTC) shares traded higher, possibly due to the interpretation that Biden’s restrictions could bolster onshore chip production in the US.

Additionally, traders should note that former US President Donald Trump remarked on Tuesday that “Taiwan should pay the US for defense,” claiming the country has taken "about 100%" of the US semiconductor business. This statement may have cast doubt on the likelihood of the US defending Taiwan against China in case of an attack, leading to a drop in many Taiwanese companies' shares.

The latest declines also impacted some major Wall Street indices, pushing the S&P 500 and the Nasdaq (US-TECH 100) down by 1.3% and 2.9%, respectively by 1.3% and 2.9%, respectively. (Source: Yahoo Finance)

Meta’s Weakens Further 

Tech and social media behemoth Meta (META) experienced a notable slump over the past couple of days, losing about 4% on Wednesday and marking its fifth consecutive day of losses as many traders shied away from tech stocks due to expectations of rate cuts. 

Additionally, Presidential candidate Trump recently showed his support for one of Meta’s biggest rivals, TikTok, stating that he’s “for TikTok, because you need competition. If you don’t have TikTok, you have Facebook and Instagram.”

US Dollar Hits a 2-Month Low

Beyond the tech industry, the Forex market also made headlines this week.

The latest Federal Reserve remarks have sent ripples across the forex market, particularly affecting the US dollar. 

The currency of the world’s biggest economy hit a record low on both Wednesday, 17 July, and Thursday, 18 July, as rate cut expectations loomed. The Fed is expected to hold its monetary policy meeting on 30-31 July, during which the central bank is projected to cut rates. If this rate cut materializes, it would mark the first cut since 2020.The predictions come after Federal Reserve chair Jerome Powell recently said in his testimony that inflation may be nearing the Fed’s 2% target range.

On the flip side, while the US dollar plunged, the euro and the British pound soared on Wednesday. The Japanese yen was also among the currencies to strengthen, surging about 4% on Thursday on expectations of government intervention to boost it.  As such, popular forex pairs like the GBP/USD soared above 1.3000 for the first time in a year, while the USD/JPY dropped.

Other events that may shift the FX realm this week include the upcoming Fed remarks today and on Friday, 19 July, and tomorrow’s ECB rate meeting in which the Eurozone’s central bank is expected to keep rates unchanged.

Conclusion

The markets moved in different directions this week as a plethora of factors ranging from geopolitical tensions to rate cut expectations and the US presidential elections materialised. 

As we head the week nears its end, it will be interesting to see what else would happen ahead of the new week.