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Morning Bid: Markets brace for supply chain aftershock

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A look at the day ahead in European and global markets by Tom Westbrook

The most powerful earthquake to hit Taiwan in at least 25 years also hit a pressure point in the global supply chain.

The island accounts for about 90% of chipmaker TSMC’s production, and although its factories are mostly on the coast opposite the epicenter, they are full of fragile equipment essential to producing chips for global companies.

TSMC said it had evacuated some manufacturing plants and that its safety systems were operating normally, while confirming details of the impact. The quake killed four people, destroyed buildings in the eastern county of Hualien and was felt in Shanghai as aftershocks rocked Taipei all morning.

Severe damage to chip foundries would reverberate around the world and highlight the urgency of U.S. President Joe Biden’s strategy to encourage local production to reduce reliance on Taiwanese manufacturing.

Shares of TSMC, which has more than 60 percent of the global market share in contract chip manufacturing and a monopoly on advanced microprocessors, were down 1.4 percent in early trading.

Shares of Apple supplier Foxconn fell more than 2 percent and those of flat-panel panel maker Au Optronics fell 1.7 percent. Markets also fell more broadly as investors await an appearance by U.S. Federal Reserve Chairman Jerome Powell, as well as U.S. services and employment figures due later in the day.

Stronger-than-expected U.S. manufacturing data released on Easter Monday appeared to trigger bond market selling that pushed benchmark 10-year yields past major chart resistance, triggering even more selling.

Ten-year yields stabilized at 4.35 percent in Asian trading on Wednesday. An uneasy calm has settled on foreign exchange markets, with traders wary of testing the mettle of Japanese authorities who have increased warnings about possible intervention.

The yen remained stable at 151.55 per dollar.

European inflation figures are also due later in the session, with a slight slowdown expected.

Main developments that could influence the markets on Wednesday:

Economy: inflation in the euro zone, American non-manufacturing ISM, ADP employment

Speech: Powell of the Fed

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