European stocks and US equity futures declined on Wednesday amid growing concerns about stricter US trading restrictions on China. The Stoxx 600 in Europe dropped, driven by a notable decline in technology shares, particularly ASML Holding NV, which fell over 5%. Investors reacted to fears of a potential escalation in US measures against Chinese semiconductor imports, despite ASML reporting higher-than-expected orders.
S&P 500 futures fell by 0.5%, while Nasdaq 100 futures slipped by 0.7%. In Asia, MSCI’s Pacific Index saw gains eroded, with Tokyo Electron Ltd., a key semiconductor equipment maker, bearing the brunt of US-China trade tensions.
Meanwhile, the British pound strengthened against the dollar following UK inflation data that exceeded economists’ expectations. The Consumer Prices Index held steady at the Bank of England’s 2% target for the second consecutive month in June, signaling persistent inflationary pressures in the services sector.
After declining on Tuesday, Treasury yields edged higher, and the dollar stabilized. Market sentiment has been buoyed by expectations of impending rate cuts by the Federal Reserve, coupled with resilience in US retail sales. However, concerns over geopolitical risks, exacerbated by the prospect of a second term for President Donald Trump, have tempered investor optimism.
“We are seeing a complex mix of factors influencing the markets,” remarked Vishnu Varathan, head of economics and strategy at Mizuho Bank Ltd. in Singapore. “While expectations of Fed easing should theoretically benefit smaller cap and technology stocks, uncertainties surrounding geopolitics and trade under Trump’s leadership are causing apprehension.”
Despite the S&P 500 reaching new record highs recently, there has been a noticeable shift towards smaller US stocks. The Russell 2000 Index notably rose 12% over the past five sessions, marking its strongest performance since April 2020.
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