Downturn in US futures on fears over China chip restrictions

In early trading today, Nasdaq futures led the market decline following a report in The Wall Street Journal indicating that the Biden administration is contemplating a ban on the sale of artificial intelligence (AI) chips to China. This potential ban has caused a setback in the recent market rally.

According to Deutsche Bank, the rebound has been curtailed due to concerns over the AI chip ban. The report suggests that even lower-end chips, which do not require an external export license, may be included in the ban going forward. As a result, shares of Nvidia, which generates 20 percent of its revenue from China, fell by 4.8 percent while Advanced Micro Devices dropped 3.6 percent.

S&P 500 recoups nearly 50 percent

Investors are also closely monitoring the European Central Bank (ECB) forum in Portugal, where Jerome Powell, the Chairman of the US Federal Reserve, is set to speak alongside the heads of the UK, eurozone, and Japanese central banks. The market will pay particular attention to any comments regarding the prospects of higher borrowing costs as central banks continue to grapple with persistent inflationary pressures.

Despite these concerns, market research firm Fundstrat believes that recent market trends indicate further gains. The rebound seen on Tuesday, which brought the S&P 500 back to multi-day highs, is viewed as a positive development that halted the recent decline. Fundstrat noted that the S&P 500 managed to recoup nearly 50 percent of its previous pullback since mid-June highs, suggesting a potentially bullish outlook.

Europe and Nikkei indexes rise

Overseas indexes mostly rose, with Europe’s Stoxx 600 gaining 0.5 percent and the Nikkei 225 in Asia rising by 2 percent. However, Chinese stocks were more subdued as fears of US AI chip restrictions dampened sentiment. The Shanghai Composite Index remained flat, while the Hang Seng edged up by 0.1 percent.

In pre-market trading, AeroVironment’s stock rose by 5.2 percent after the company reported a better-than-expected 40 percent increase in fourth-quarter revenue and issued guidance for the current fiscal year that surpassed Wall Street expectations. On the other hand, AST SpaceMobile’s shares fell by 24 percent following the announcement of a sale of 12 million class A common shares.

Micron Technology stock declines by 1.5%

Micron Technology, scheduled to report quarterly earnings after the closing bell today, saw a decline of 1.5 percent in its stock price. Other chip makers, including Intel and Qualcomm, also traded lower.

In other news, the US Food and Drug Administration rejected an application from Regeneron Pharmaceuticals for approval of a new, higher-dose version of its eye disease treatment Eylea, resulting in a 1 percent decline in the company’s stock.

Looking ahead, Astrotech received an unsolicited, non-binding proposal from BML Investment Partners to acquire the company for $17.25 per share, leading to a 7.7 percent increase in its shares.

Dollar strengthens

On the economic front, JPMorgan expects the second half of 2023 to see a continuation of tightening policies by most developed market central banks. However, differentiation across jurisdictions will emerge as the end of the tightening cycle approaches. The bank believes that resilient growth and persistent inflation will prevent an imminent recession.

In the currency markets, the dollar strengthened slightly, building on its gains from the previous day following a set of stronger-than-expected economic data. UBS said that the dollar is “significantly overvalued” against several other relevant currencies but expects it to weaken in the coming months.

 

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