Stocks snapped a three-day winning streak on Thursday as disappointing forecasts from Facebook and Instagram owner Meta hammered the tech sector, while FX markets watched Japan’s yen sink through 155 per dollar for the first time since 1990.
Tepid U.S. GDP data pushed Wall Street lower at its open but with more ‘Big Tech’ earnings scheduled for later it was Meta’s slump (META.O), that soured the mood the most.
It plunged almost 15% in afterhours moves on Wednesday. Japan’s tech-heavy Nikkei (.N225), opens new tab then slid 2%, followed by a 1% slide in European tech (.SX8P), opens new tab, as dealers seemed to forget all about the previous day’s Tesla-driven optimism.
In an earnings-packed week, tech bellwethers are in the spotlight, with Alphabet (GOOGL.O), Microsoft (MSFT.O), and Intel (INTC.O), also due to report after Thursday’s closing bell.
“If Meta is a guide, it seems the market is simply not tolerant of in-line – if you’ve had a good run through Q1 & Q2 you either blow the lights out, or the market takes its pound of flesh,” said Chris Weston, head of research at Pepperstone.
Robert Alster, Chief Investment Officer at Close Brothers Asset Management, added that Mark Zuckerberg’s comments on Meta needing to spend to keep up in the AI arms race had been another major factor.
European earnings and M&A deals were flooding in too.
London’s FTSE 100 (.FTSE), hit another record high as UK-listed miner Anglo American (AAL.L), surged 11% on a $39 billion buyout offer from Aussie rival BHP (BHP.AX), while Deutsche Bank (DBKGn.DE), and BNP Paribas (BNPP.PA), both edged up after the euro zone’s biggest lenders posted upbeat first-quarter profits.
US SLOWDOWN
Beyond corporate earnings, investors were digesting the sharper-than-expected slowdown in first quarter U.S. economic growth.
GDP increased at a 1.6% annualized rate, the Commerce Department’s Bureau of Economic Analysis said, largely supported by consumer spending. Economists polled by Reuters had forecast a brisker 2.4%.
“Despite the expected GDP slowdown in 2024, there are no imminent signs of a recession,” said Mutual of America Capital Management’s chairman and chief executive Stephen Rich.
Recent hotter-than-expected inflation reports have pushed back and reduced expectations for Federal Reserve interest rate cuts, with markets now pricing in roughly a 70% chance of a first reduction in September. They are not even fully convinced there will now be another one this year, having expected around six cuts at the start of the year.
The shifting expectations of U.S. rates have lifted Treasury yields and the dollar, casting a shadow on the currency market. Against a basket of currencies, the dollar (.DXY), ticked fractionally higher to 105.89 after the GDP data.
The Japanese yen, which is sensitive to U.S. Treasury yields, has felt the brunt of the dollar’s ascent and is down 9% this year, the worst performing G-10 currency.
It was fetching 155.70 per dollar, its weakest in 34 years, in early afternoon in European and post-GDP data in the U.S. It is also now firmly past the latest line in the sand traders had drawn for Japan to intervene in the markets.
“Tokyo has still not intervened, and I reiterate that it does look like there will be no intervention so long as USD/JPY’s climb continues in a relatively non-volatile fashion,” said RBC Capital Markets’ head of Asian FX strategy, Alvin Tan.
The Bank of Japan (BOJ) started its two-day rate-setting meeting on Thursday, with expectations that it will keep its key short-term interest rate target unchanged.
Attention will be on what BOJ Governor Kazuo Ueda’s says about the yen’s struggles. Ueda will want to avoid any repeat of an episode in 2022, when remarks by his predecessor triggered a big yen tumble that forced Tokyo to spend an estimated $60 billion trying to stabilise it again.
“At this stage, if they were to intervene, they might as well just throw their money into the sea,” said Rob Carnell, head of Asia-Pacific research at ING. “For all the good it will do, except in the very short run.”
Benchmark bond prices were a touch lower after the U.S. data while both Brent and U.S. crude were barely moved at $88.10 and $82.87 per barrel respectively. Gold, which hit a record high earlier this month, inched up to $2,330 an ounce.
