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US stocks drop as Asia and Europe recover

US stocks continued to fall midweek, dragged down by chipmakers, while Europe closed mostly higher on Wednesday and Asian markets were making solid gains across the board on Thursday. Inflation data out of Europe bolstered hopes that the European Central Bank (ECB) may begin cutting rates at its June meeting, while inflation figures out of the UK caused concern that prices could be stickier in Britain, similar to recent developments in the US.

Shane Strowmatt, LGT
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5 minutes
Mixed markets
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In New York, stock indices finished Wednesday lower with the tech-heavy Nasdaq indices leading losses. The Dow Jones Industrial lost 0.1%, the S&P 500 fell 0.6% and the Nasdaq-100 plummeted 1.2%. Shares of ASML - which is part of the Nasdaq-100 Index - dropped more than 7% in New York trading after the Dutch semiconductor supplier failed to meet analysts’ expectations for first-quarter earnings. Particularly, orders were low as chipmakers postponed purchases of ASML machines. ASML’s first-quarter result pressured the sector with major US semiconductor stocks AMD (-5.8%), Intel (-1.6%) Nvidia (-3.9%) closing the day deep in the red. On a more positive note for the sector, Taiwan Semiconductor Manufacturing beat Wall Street’s expectation for revenue and profit early Thursday, citing a strong demand particularly for AI chips.

Despite the drop in chip-related stocks, a sense of calm was returning to markets midweek after several sessions dominated by negative sentiment, which was exacerbated by negative geopolitical headlines out of the Middle East. Treasury yields cooled on Wednesday with yields on two-year US government debt trading around 4.92% after briefly breaching 5% earlier in the week. Gold was largely stable for most of the week and trading around USD 2,380 per ounce, somewhat below last week’s all-time high.

In the Asia-Pacific region, stock markets were making solid gains on Thursday. South Korea’s Kospi was the region’s biggest winner and was trading up 2.1% while Tokyo’s Nikkei 225 gained 0.1%. In Australia, the S&P/ASX 200 was up 0.4% after unemployment ticked up to 3.8% in March. Hong Kong's Hang Seng Index was trading 1.2% higher, while the Shanghai Composite was up 0.4%.

In the euro area, prices continued to fall and were quickly approaching the European Central Bank’s target of 2%, data released Wednesday confirmed. In March, consumer prices increased 2.4% when compared with the same month a year earlier, down from February’s 2.6%. ECB President Christine Lagarde said on Tuesday that if the current disinflationary trend continues, the ECB will need to begin cutting rates soon. Markets largely anticipate a rate cut at the central bank’s June meeting. The Euro Stoxx 50 was down 0.1%, Germany’s DAX gained 0.1% and France’s CAC 40 finished Wednesday’s session up 0.6%.

The inflation rate in the UK fell to 3.2% in March when compared with the same month a year earlier, a slightly slower pace than February’s 3.4%. While inflation has been falling from a double-digit peak in 2022, it remains above the Bank of England’s (BoE) 2% target. The central bank’s monetary policy report from February forecast inflation hitting that target by this spring before increasing slightly again. A separate data release showed input prices falling by 2.5% during the year ending in March. Falling producer prices often indicate less pressure on consumer prices as producers pass on lower input costs to customers. Nevertheless, the slow rate of disinflation is causing concerns that inflation could remain sticky - similar to developments in the US - and the Bank of England may be forced to push back interest rate cuts until late this year. The pound gained against most major currencies on Wednesday.

In geopolitics, the Hezbollah militant group launched a series of air attacks at a military facility in Israel, wounding 14 soldiers. Israel fired back. The clashes along the border with Lebanon add another element to the conflict in the region, after Iran attacked Israel with hundreds of missiles and drones over the weekend.

Corporate news in focus: Quarterly figures from ABB, Netflix, Nordea, Nokia, Sartorius, Schindler.

Economic data in focus: Swiss trade balance, meeting of euro-area finance ministers (Eurogroup), US weekly initial jobless claims, Philly Fed Index, US existing home sales.


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