Semiconductors hit by US export controls

written on October 11, 2022

The war in Ukraine has tended to increase uncertainty regarding inflation and growth prospects. When and with what consequences this war will end is pure speculation, but capital markets are expected to build a certain immunity to the headline risks in the coming weeks. The medium- to long-term consequences, on the other hand, could be significant. It is possible that we are at the beginning of a new bloc formation or a new Cold War. This would put a significant damper on globalization and further fuel higher structural inflation. 

US equities closed lower Monday in a choppy trading session which piled on to Friday’s large drawdown. Many of the same headwinds that have driven the recent market volatility remained a part of the market’s narrative as anxiety over the potential for further aggressive monetary policy tightening from the Fed and escalating geopolitical tensions in Ukraine linger. The Dow Jones Industrial Average decreased by 0.3%, the S&P 500 fell 0.8%, and the Nasdaq Composite tumbled 1.0% on moderate volume. Shares in Europe also finished mostly lower as the markets continued to grapple with the recent volatility in the currency and bond markets, the festering energy crisis in the region, and as the global monetary policy environment remains tight. 

Summary

  • Asian equity markets mostly declined on Tuesday, with shares in Japan, South Korea, Hong Kong and Taiwan weighed down by losses in chip-related shares in the wake of fresh curbs on China’s access to US semiconductor technology. Meanwhile, Australian shares rose on higher metals prices and mainland Chinese equities paused a recent slide. 
  • European equities are set for a lower open while US futures were flirting with the flatline. 
  • Oil prices were lower this morning, extending nearly 2% losses in the previous session, as a stronger US dollar and a flare-up in Covid-19 cases in China increased fears of slowing global demand. 
  • US bond markets were closed yesterday for Columbus Day. The yield on the 2-year note sits at 4.31%, the yield on the 10-year note is 3.89%, and 30-year bond rate remains at 3.84%. 
  • JPMorgan Chase CEO Jamie Dimon on Monday warned that a “very, very serious” mix of headwinds was likely to tip both the US and global economy into recession by the middle of next year. Among the indicators ringing alarm bells, Dimon cited the impact of runaway inflation, interest rates going up more than expected, the unknown effects of quantitative tightening, and Russia’s war in Ukraine. 
  • Russia unleashed mass strikes on at least 11 cities across Ukraine on Monday in its largest aerial assault since the early days of the war. More than 80 cruise missiles and 24 self-destructing drones exploded in cities in nearly every corner of the country, killing at least 14 people and wounding almost 100 more. 
  • UK bonds slumped yesterday after the Bank of England’s moves to increase emergency backstop measures failed to reassure the market. Investors are dumping UK assets once again after a selloff that started in late September on concerns about the new government’s fiscal policies. 
  • Rivian Automotive announced that it will recall nearly all 13,000 of its vehicles to fix a potential steering issue caused by a loose bolt. The electric vehicle automaker said no injuries have been reported as a result of this problem. Shares ended the day down by over 7%. 
  • Shares of the world’s largest chipmaker, Taiwan Semiconductor Manufacturing Company, dropped as much as 8% this morning on its return to trade after a holiday on Monday. The equity was reacting to news of US export controls on high-end tech that are meant to limit China’s ability to buy and manufacture advanced semiconductors used in military equipment. 

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