Asian Stocks Track US Tech-Led Drop, Yen Rallies: Markets Wrap

(Bloomberg) — Equities in Asia declined as investors began pulling back on the artificial-intelligence frenzy that has powered the bull market this year. The yen rose for a fourth day ahead of next week’s Bank of Japan meeting.

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Stocks in Japan and South Korea both fell over 2%, with chipmaker SK Hynix Inc. tumbling as much as 8.4% even with solid earnings. Stocks in Hong Kong and mainland China also slipped. In the US, the S&P 500 slumped 2.3%, its worst showing since December 2022.

The yen climbed sharply early Thursday to compound a rally of more than 1% against the dollar on Wednesday. The Japanese currency is trading at the strongest levels relative to the greenback since May in an advance that reflected an unwind in carry trades.

“Unease among yen bears is deepening with Japanese monetary policy possibly tightening next week, in contrast to coming rate cuts by the Federal Reserve and the European Central Bank,” said Wei Liang Chang, macro strategist at DBS Bank Ltd. “Further yen strength into the BOJ meeting next week cannot be discounted.”

Former New York Fed President William Dudley called for lower borrowing costs — preferably at next week’s gathering. For many analysts, such a move would be worrisome as it would indicate officials rushing to avoid a recession. Later Thursday in the US, investors will see further evidence of the health of the economy with US GDP and initial jobless claims data being released.

In Asia, the People’s Bank of China cut its medium-term lending facility rate to 2.3% from 2.5% on Thursday, following a surprise reduction to a key short-term rate to boost slowing economic activity. The nation’s 10-year bond futures rose.

An index of dollar strength was little changed Thursday after a similarly flat Wednesday. The Canadian dollar held declines from the prior day as the Bank of Canada cut rates for a second consecutive meeting and signaled further easing was ahead. In the Philippines, the nation’s central bank suspended currency trading for a second day due to Typhoon Gaemi.

Big Tech Pullback

The tech-heavy Nasdaq 100 fell 3.7% weighed down by its largest constituents. Alphabet Inc. slid 5% with spending higher than analysts expected, while Tesla Inc.’s Robotaxi delay spurred a 12% stock plunge. Treasuries rallied in Asian trading after the bond curve steepened in the previous session on bets the Fedis close to cutting rates.

After driving the rally in stocks for most of 2024, big tech slammed into a wall. Traders rotated from megacaps to lagging parts of the market, spurred by bets on Fed rate cuts and concern AI still needs to pay off.

“Tech’s problem isn’t just that earnings are less than perfect, but the group is still caught up in the violent rotation trade that kicked off with the June CPI,” said Vital Knowledge’s Adam Crisafulli. “Many assumed the anti-tech rotation would be ephemeral and the fact it’s proving durable is compounding anxiety toward the group and spurring additional selling pressure.”

The drubbing in these stocks has seen some of the air come out of valuations. While that’s something that could argue in favor of dip buying, the earnings season is just getting started. Apple Inc., Microsoft Corp., Amazon.com Inc. and Meta Platforms Inc. are all due to report results next week.

In commodities, oil slipped Thursday after snapping a four-day decline in its previous session. Gold extended losses from Wednesday.

Key events this week:

Germany IFO business climate, Thursday
US GDP, initial jobless claims, durable goods, Thursday
US personal income, PCE, consumer sentiment, Friday

Some of the main moves in markets:

Stocks

S&P 500 futures rose 0.2% as of 10:41 a.m. Tokyo time
Nikkei 225 futures (OSE) fell 2.8%
Japan’s Topix fell 2.6%
Australia’s S&P/ASX 200 fell 1%
Hong Kong’s Hang Seng fell 0.9%
The Shanghai Composite fell 0.4%
Euro Stoxx 50 futures fell 0.3%

Currencies

The Bloomberg Dollar Spot Index was little changed
The euro was little changed at $1.0841
The Japanese yen rose 0.7% to 152.81 per dollar
The offshore yuan was little changed at 7.2645 per dollar
The Australian dollar fell 0.2% to $0.6566

Cryptocurrencies

Bitcoin fell 2.5% to $64,399.59
Ether fell 4.9% to $3,209.87

Bonds

The yield on 10-year Treasuries declined two basis points to 4.26%
Japan’s 10-year yield was little changed at 1.080%
Australia’s 10-year yield was little changed at 4.33%

Commodities

West Texas Intermediate crude fell 0.4% to $77.26 a barrel
Spot gold fell 0.9% to $2,377.08 an ounce

This story was produced with the assistance of Bloomberg Automation.

–With assistance from Winnie Hsu.