Morning Note: Market news and an update from ASML.

Market News

US equities moved ahead to touch another record high last night – S&P 500 (+0.2%); Nasdaq (+1.0%) – as tech giants gained on Federal Reserve comments leaning toward easing policy in December. The 10-year Treasury yields 4.22%, while gold trades at $2,640 an ounce. Brent Crude edged up to $72.30 a barrel with the focus on OPEC+ supply and China stimulus.

French PM Michel Barnier warned lawmakers the country has reached its “moment of truth,” as far-right leader Marine Le Pen is set to join a left-wing coalition to topple his government as early as tomorrow. French 10-year bonds currently yield 2.91%, 87 basis points above German bunds.

In Asia this morning, equity markets enjoyed a strong session as new US curbs on Chinese access to vital chip and AI components proved to be less punitive than feared – Nikkei 225 (+1.9%); Hang Seng (+0.7%); Shanghai Composite (+0.4%). China’s top leaders plan to start a key annual economic work conference next Wednesday to map out growth targets and stimulus plans for 2025. However, ETFs tracking Chinese stocks saw record outflows last month as investors yanked their money on concerns about Trump’s tariff threats and disappointing stimulus measures.

The FTSE 100 is currently trading 0.4% higher at 8,349. The UK unemployment rate is largely unchanged at 4.2%. Sterling trades at $1.2683 and €1.2063.

Source: Bloomberg

Company News

Last night, ASML released a statement in response to the updated export control regulations published by the US authorities. The impact is expected to fall with company’s current revenue guidance for 2025. The shares, which are listed in Amsterdam and on NASDAQ, are trading up 2% this morning.

ASML is a Dutch company that manufactures complex lithography systems critical to the production of semiconductors (or microchips). The systems allow light to be projected through patterns to make blueprints for manufacture of chips, without which semiconductor producers would not be able to develop the next generation of chips.

As the only global supplier of the latest generation of lithography machines, ASML is in a critical position in the production of new chips, which are key in all efficient electronic-based processes. Without ASML’s lithography, it would be near impossible to deliver increasing compute power on decreasing chip sizes at the pace required to meet ever expanding demand for connected devices. As a result, the company is well placed to benefit from structural disruptive trends such as AI, climate change, Internet of Things, and big data.

The company benefits from strong growth dynamics, while its near-monopolistic position drives high gross margins (50%+) and returns (20%+). The group aims to pay an annual dividend that will grow over time – the 2023 payout was increased by 5.2%. After paying dividends, ASML uses remaining free cash flow for share buybacks and is currently undertaking a programme of up to €12bn to be executed by the end of 2025.

Yesterday, the US authorities published an updated version of the advanced computing and semiconductor manufacturing equipment rule, imposing additional restrictions on suppliers for the export of chip manufacturing technology. These regulations will become effective immediately with a delayed compliance date of 31 December 2024 for some of the changes.

The updated export control regulations contain additions to the list of restricted technologies including metrology and software. In addition, further fab locations, mainly in China, are added to the US list of restrictions. Should a similar security assessment to the one underpinning the US restrictions also be made by the Dutch authorities, exports of DUV immersion lithography systems to these specific locations could also be affected.

For 2024, ASML does not expect any direct material impact on its business. For 2025, the company expects the impact will fall within its guidance for total net sales to be between €30bn and €35bn. The company also expects its China business (net system sales plus net service and field option sales) to be around 20% of total net sales for the year.

Long-term, the company’s scenarios for demand in the semiconductor industry are not expected to be impacted by the new regulations, as these scenarios are based on the global demand for wafers rather than on any specific geographic split. As a result, the company has confirmed its potential 2030 scenarios for annual total net sales between approximately €44bn and €60bn as outlined at the recent Investor Day. At the time, the company also set a gross margin target of between 56% and 60%.

Source: Bloomberg