Asian stocks: Asian stocks track US decline for a second day: Markets wrap

Shares in Japan, South Korea and Australia dropped. The S&P 500 fell 0.8% Thursday, extending a drop from the prior session and placing the benchmark on track for its largest weekly decline since April.

The Nasdaq 100 fell 0.5%, while the Russell 2000 benchmark of US small companies fell 1.9%, continuing to pull back from a rally earlier in the week as investors rotated from large technology stocks. US equity futures edged higher early Friday.

A rout in chip stocks on signs the US would impose fresh restrictions on sales to China also began to abate. An index of such firms that includes Nvidia Corp. and Advanced Micro Devices Inc. rose 1.7%, easing its 6.8% drop the prior day. Broadcom Inc. closed higher on a report it has discussed making a chip for OpenAI. Taiwan Semiconductor Manufacturing Co.’s US-listed shares rose on a stronger revenue outlook.

Bloomberg

Treasury 10-year yields rose four basis points to 4.20% Thursday. Australian yields echoed the move early Friday while those for New Zealand were little changed.The yen was slightly firmer against the greenback after a Thursday decline. Japan inflation data for June came in softer than estimated. An index of the dollar was little changed early Friday after strengthening in the prior session.US initial jobless claims data on Thursday showed the biggest increase since early May in a sign of cooling in the labor market that supports expectations the Federal Reserve will soon cut interest rates.The central bank is getting closer to reducing borrowing costs in September amid growing confidence that price stability is within sight. They’ve laid the groundwork for the coming move in speeches over recent weeks, and Chair Jerome Powell will likely flag it more explicitly after a policy meeting later this month.

Elsewhere, Joe Biden’s grasp on the Democratic presidential nomination appeared to be slipping Thursday, as he weighed increasingly public warnings from his party’s top lawmakers.

In Asia, investors will be on the lookout for fallout from China’s Third Plenum meeting. President Xi Jinping vowed to make “high-quality development” the guiding force of the world’s No. 2 economy, showing few initial signs that the top leadership is preparing to unleash major steps to boost demand or arrest the property slump.

Data set for release in the region includes second-quarter gross domestic product for Malaysia and balance of payments for the Philippines.

US Small Caps
In the US, the Russell 2000 rose more than 10% in just a few days, with most of the rally coming after cooler inflation data last week that bolstered bets on rate cuts.

Small caps notched their best-ever performance over their larger peers in a five-day period, Jim Bianco, founder of his namesake research firm, said in a recent X post. He tracked the difference between the Russell 2000 and Russell 1000 since 1978.

To Dan Wantrobski at Janney Montgomery Scott, the recent rotation pushed the broader markets into some moderately overbought territory on a short-term basis. This alongside ongoing extended conditions in leadership areas renders them vulnerable to potential consolidation over the short run, he noted.

“The backdrop for US equities remains favorable” and “earnings growth is broadening out,” said UBS US equity strategists including David Lefkowitz and Nadia Lovell. “we are increasing our year-end S&P 500 price target to 5,900” given a “constructive” backdrop.

In commodities, oil edged lower in early Friday trading.