Chipmakers weigh on stocks, oil edges higher

By Marc Jones and Stella Qiu

LONDON/SYDNEY, July 16 (Reuters) - European markets edged lower on Thursday following more overnight volatility in Asia’s tech-dominated indexes, while benign U.S. inflation data helped keep the dollar and government bond yields under control, as the U.S.-Israeli war on Iran nudged oil prices up again.

Despite stellar results from Taiwanese chip giant TSMC, South Korea's KOSPI fell 6%. The index doubled in value during the first half of the year, but has now slumped nearly 20% this month as doubts have crept in.

Europe's STOXX 600 also moved lower. The tech bulls were putting up a fight thanks to gains for ASML in Amsterdam. That was more than offset by declines of 0.5% to 1% in other sectors like utilities and telecoms.

Oil prices edged higher again after more overnight U.S. strikes on Iran. Hostilities have been escalating in the Middle East in recent days, with Washington launching attacks on Iran, while Tehran hit U.S. bases in Kuwait and Jordan.

Brent crude futures were 0.7% higher in London at $84.50 a barrel and up roughly 11% for the week so far. [O/R]

"It's hard, unfortunately, to take your eyes off the Iran war, Trump's tweets and the oil price," Marlborough fund manager James Athey said, given the potential implications for global interest rates.

"In equities, there is still incredible volatility," he added. "The market is still flailing a bit for want of a better word, on how to price the AI trade and the extent to that is sustainable."

SpaceX shares also dropped below their initial public offering price for the first time on Wednesday, which Athey said had not helped sentiment either.

STERLING SLIPS BACK

In the currency markets, Britain's pound dipped from a two-month high reached on Wednesday following reports that soon-to-be British Prime Minister Andy Burnham would likely name fiscal conservative Shabana Mahmood as his new chancellor of the exchequer.

Data released on Thursday underscored the challenge they will face. Britain's economy eked out only minimal growth of 0.1% in May, the figures showed, in line with the median forecast of a Reuters poll of economists.

Sanjay Raja, chief U.K. economist at Deutsche Bank, said Britain was still likely to remain near the top of the Group of Seven growth table in the April-to-June period.

"In short, PM (Keir) Starmer hands over the economy to his successor on a much better footing," he said.

BENIGN U.S. INFLATION

Wall Street futures [.N] were pointing to a broadly steady restart for the main U.S. indexes after gains on Wednesday, as investors rotated back into Magnificent Seven stocks and banks after the week's bumper crop of earnings from major lenders.

The other key boost had been surprisingly soft U.S. PPI data for June, which had followed benign consumer inflation figures a day earlier. It saw traders cut pricing on a U.S. rate hike this month to just 10%. It had been as high as 43% in recent weeks. 

The pullback in inflation may prove only temporary, however, with oil and gas prices climbing on the renewed Middle East hostilities. 

For bond investors, 2-year Treasury yields edged up 2 basis points to 4.1514%, after falling 14 bps over the past two days. 10-year yields inched up 1 bp to 4.5594%, having been down 7 bps over the past two days. 

It has been a different story in Europe, however. Germany's 10-year bond yield, the benchmark for the euro zone, was 1 basis point higher at 3.13% on Thursday, its highest point since May 20.

It has risen 9 bps so far this week and 26 bps in July so far as traders fear the renewed climb in oil and gas prices will force the European Central Bank to raise interest rates more aggressively, while also weighing on the longer-term economic growth.

Britain's 10-year gilt yield briefly touched 5% again on Tuesday.

"The cooler (U.S.) PPI report fits with recent inflation data coming in below consensus, which should be welcomed by the Fed," BCA Research strategist Felix Vezina-Poirier said. "We are past peak hawkishness."

That view has pulled the dollar down, except against the beleaguered yen. The dollar index was steady at 100.52 in Europe, after falling 0.4% on Wednesday to the lowest point since June 18. The yen hovered at 162.16, not far from the 40-year low of 162.84, as speculators remain wary of Japanese intervention.

(Reporting by Marc Jones; Editing by Thomas Derpinghaus)