Asian stock markets declined on Thursday as a broad selloff in semiconductor shares outweighed record earnings from Taiwan Semiconductor Manufacturing Company (TSMC), while softer than expected U.S. inflation data boosted bond markets and eased concerns over another imminent Federal Reserve interest rate hike.
Meanwhile, oil prices retreated after the United States completed another round of strikes on Iran, although crude remained sharply higher for the week amid escalating tensions across the Middle East.
Chip stocks drag regional markets
Asian equities came under pressure despite another strong quarter from TSMC, the world’s largest contract chip manufacturer and a key supplier to the artificial intelligence industry.
TSMC reported a 77 percent increase in second quarter profit, well above analysts’ expectations, reflecting continued robust demand for advanced AI chips.
Stay ahead of the geopolitical week.
MD Briefing delivers expert analysis across five global fronts — the Indo-Pacific, energy, geoeconomics, European security, and the Middle East — every Monday morning. Free.
However, investors continued to take profits across the semiconductor sector.
MSCI’s broad Asia Pacific index outside Japan fell 1 percent, while South Korea’s KOSPI dropped 6.2 percent, led by steep declines in Samsung Electronics and SK Hynix.
Japan’s Nikkei also fell 3 percent, highlighting the region’s heavy exposure to technology and semiconductor companies.
Hong Kong’s Hang Seng Index was the notable exception, rising 1.8 percent.
Market analysts suggested the selloff reflected extremely high investor expectations rather than disappointing corporate performance.
Strong earnings fail to lift semiconductor sector
The weakness followed Wednesday’s results from Dutch chip equipment maker ASML, which raised its 2026 sales outlook and announced plans to expand manufacturing capacity to meet growing AI demand.
Despite the upbeat guidance, ASML shares ended lower, reinforcing concerns that investors have already priced in much of the semiconductor sector’s strong growth outlook.
Analysts noted that after months of rapid gains, chip companies now face exceptionally high expectations, making it increasingly difficult for earnings reports to generate further rallies.
Softer U.S. inflation supports bond markets
Investor sentiment improved in fixed income markets after another encouraging U.S. inflation report.
Producer price data for June followed weaker than expected consumer inflation figures released a day earlier, strengthening expectations that inflationary pressures continue to moderate.
As a result, financial markets significantly reduced expectations that the Federal Reserve will raise interest rates at its next meeting.
The implied probability of a July rate hike has fallen to around 10 percent, compared with more than 40 percent earlier this month.
U.S. Treasury yields declined over the past two sessions before stabilizing on Thursday, while the U.S. dollar weakened against most major currencies.
Oil prices ease after latest U.S. strikes
Crude prices edged lower after the United States completed its latest military strikes on Iranian targets.
Brent crude fell about 0.5 percent to around $84.50 per barrel, although prices remain roughly 11 percent higher for the week as geopolitical risks continue to dominate energy markets.
Recent hostilities have included U.S. attacks on Iran alongside Iranian strikes targeting American military facilities in Kuwait and Jordan, keeping investors alert to potential disruptions in regional energy supplies.
Currency markets react
The softer inflation data weighed on the U.S. dollar, which fell to its lowest level in nearly a month against a basket of major currencies.
The Japanese yen remained under pressure near multi decade lows as traders continued to monitor the possibility of intervention by Japanese authorities.
Meanwhile, the British pound climbed to a two month high amid expectations that Britain’s incoming Labour leadership could adopt a more fiscally conservative economic approach.
Analysis
Thursday’s trading highlighted the increasingly complex balance between corporate performance, monetary policy, and geopolitical risk. Despite exceptional earnings from leading semiconductor companies, investors appear reluctant to push valuations higher after months of AI driven gains. The market reaction suggests that strong results alone may no longer be sufficient to sustain the technology rally unless accompanied by even stronger forward guidance.
At the same time, cooling U.S. inflation has shifted attention back toward the prospect of lower borrowing costs, providing support for bonds and easing pressure on global financial markets. However, escalating conflict in the Middle East continues to pose a significant risk. If higher oil prices begin feeding back into inflation, central banks may once again face difficult choices between supporting economic growth and containing price pressures.
With information from Reuters.
