Trade Tensions Hamper Chip Production

Investors in the semiconductor sector have been cautious due to Washington's increasingly protective policies towards the U.S. chip manufacturing industry, which is seen as crucial for competing with China.

Bloomberg reported on Wednesday that the U.S. has informed its allies of potential severe trade restrictions if companies continue to provide China with advanced semiconductor technology.

This, combined with Republican presidential candidate Trump's statement that Taiwan should compensate the U.S. for its defense, has led to a significant drop in chip stocks, erasing over $500 billion in market value.

Chip stocks had been driving this year's global stock market rally, pushing the Nasdaq (.IXIC) and S&P 500 (.SPX) to record highs. Some analysts believe the recent market movements reflect investors adjusting their positions.

In Asia, attention is on TSMC (2330.TW), which is set to report earnings later on Thursday. Its shares have fallen more than 6% over the past two days.

Meanwhile, the European Central Bank's policy meeting will be a key event, with expectations that the bank will maintain current rates while officials' comments may provide insights into the next rate cut.

These comments are likely to affect the euro, which reached a four-month high on Wednesday as traders anticipated a 25 basis-point rate cut by the Federal Reserve in September, following officials' remarks.

The yen experienced volatility after hitting a six-week high on Thursday, with traders unsettled by suspected intervention by Tokyo last week, which Bank of Japan data suggests could have involved nearly 6 trillion yen ($38.4 billion). Official spending data is expected at the end of the month.

Key events that could impact markets on Thursday include the ECB meeting, UK wage data, and UK Gfk July consumer confidence data.

Jake Robson, Editor