Asian Stocks Mixed on Tech Losses, Yen Swings: Markets Wrap

(Bloomberg) — Asian equities were mixed as traders weighed the firming expectations of Federal Reserve interest rate cuts against continued weakness in technology shares.

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Stocks in Australia, Japan and South Korea climbed along with futures contracts for US equities on Friday. Chinese shares in Hong Kong and mainland fell, while the yen whipsawed ahead of next week’s Bank of Japan meeting.

Taiwanese shares were the worst performers, tumbling as much as 4.3% as trading resumed after disruptions caused by Typhoon Gaemi. The declines marked a catch-up to previous tech-related declines in global stocks and included a steep drop for Taiwan Semiconductor Manufacturing Co. which fell as much as 6.5%.

The US 10-year yield was little changed in Asian trading after slipping four basis points on Thursday as Treasuries pushed higher. Gains for US government debt came as traders weighed signs of a resilient US economy against calls for quicker rate cuts from the Federal Reserve. The swaps market is currently pricing in the first rate cut in September.

Asian equities are set for the first back-to-back weekly losses since May as a global rotation out of technology stocks — particularly those benefiting from the AI boom — and toward laggards of the year accelerated this week.

“We’re still not calling a peak in Asian AI, but it feels as though we are getting closer,” HSBC Holdings Plc strategists including Herald van der Linde wrote in a note. Momentum is shifting fast and “we are now even more convinced that the sector warrants close attention.”

China’s benchmark government bond yield fell to a new record low as a bond rally extended, testing policymakers’ resolve to stem the move. Meanwhile, stocks were lower, with the CSI 300 Index set for its worst week since early February, as traders sought haven assets amid a flailing economic recovery.

The yen traded below 154 per dollar in erratic trade and remained off its intra-day highs from the prior session. Inflation in Tokyo accelerated for a third month in July, reinforcing bets of a possible interest rate hike when the central bank’s policy board meets next week.

“To convincingly crack below 150, we need the Fed to actually deliver, or to see much more in the way of selling of foreign bonds by institutional Japan,” Tim Baker, Head of Macro Research for Deutsche Bank AG, said on Bloomberg Television.

The yen’s rally remains fragile, with only 30% of BOJ watchers surveyed by Bloomberg forecasting a hike, even if more than 90% see it as risk.

A squeeze back toward 155.30 per dollar is “not out of the question” ahead of the BOJ meeting, said Tony Sycamore, an analyst at IG Australia Pty. “However, after that, all bets are off.”

Growth Accelerates

In the US, the S&P 500 slipped 0.5% Thursday while the Nasdaq 100 declined 1.1% as tech giants including Nvidia Corp. and Microsoft Corp. slumped. Small caps outperformed in a further sign investors are preparing for interest-rate cuts that will support the broader economy.

Economic growth quickened by more than forecast in the second quarter, illustrating demand is holding up under the weight of higher borrowing cots. Gross domestic product increased at a 2.8% annualized rate after rising 1.4% in the previous quarter. A closely watched measure of underlying inflation rose 2.9%, easing from the first quarter but still above estimates.

The US economy is much stronger than people realize and to the extent that markets were worried about a growth slowdown, they should breathe a sigh of relief after the GDP number, according to Chris Zaccarelli at Independent Advisor Alliance.

“As long as the economy avoids a recession, then this bull market will continue through 2024 and well into 2025, so we would take advantage of any pullbacks along the way,” he noted.

In commodities, West Texas Intermediate extended gains into a third day on Friday. Gold edged higher.

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