Hopes for a slowdown in central bank rate hikes is being offset by weak earnings from mega-cap tech firms
Most markets fell Friday as a weakening economy and disappointing earnings from tech giants offset signs that central banks could begin slowing their interest rate hike campaign.
After being battered for most of the year by worries that borrowing costs will continue to rise to fight inflation, traders were cheered by a report last week indicating the US Federal Reserve could take its foot off the gas soon.
That was followed by comments from policymakers hinting as much, while a string of data suggesting the world’s top economy was feeling the impact of higher rates also gave the bank room to manoeuvre.
Meanwhile, a below-expectation increase by the Bank of Canada this week and signs the European Central Bank could take a less hawkish turn helped fuel speculation of a softer outlook for rates, helping push government bond yields down around the world.
Focus is now on the Fed’s next policy decision on Wednesday.
While it is widely tipped to announce another bumper hike, traders will be poring over the post-meeting statement for clues about its plans for December and 2023, with hopes it will indicate a slower pace.
Data showing the US economy grew more than expected was tempered by underlying figures indicating, among other things, that consumer spending — the key driver of growth — remained fragile.
“The notion ‘bad news is good news’ is increasingly driving price action as Fed hikes expectations are lowered in the face of weaker data,” said SPI Asset Management’s Stephen Innes.
“Bank of Canada’s surprise 50 basis point hike on Wednesday, coupled with a less hawkish forward guidance from the ECB… added to the idea that peak tightening globally has passed.”
– Tech weakness –
However, Wall Street ended on a mixed note, with the Nasdaq losing more than one percent after forecast-missing earnings this week from some of the world’s biggest firms including Apple, Amazon, Facebook parent Meta and Google parent Alphabet.
“With tech performing so poorly, the messaging to markets is confusing many investors as the sharp slowdown in the fortunes of the tech sector contrasts with the outperformance of more traditional economic bellwethers,” said Michael Hewson at CMC Markets.
“The contrast is also outweighing the anticipation that central banks may be looking to slow the pace of their rate hiking cycle.”
The losses filtered through to Asia where tech was again in the firing line.
They were felt particularly in Hong Kong, where the Hang Seng Index shed more than three percent — at the end of a bruising week hit by worries that Xi Jinping’s tightened grip on power in China could see more crackdowns on the sector.
The sharp drop in the city came after rebounding slightly during the past few days, following a rout on Monday.
There were also losses in Tokyo as investors await a fresh stimulus package local media said could be worth as much as $200 billion as the government tries to kickstart the economy and cushion the country from inflation and a weaker yen.
The yen fell to more than 147 per dollar after the Bank of Japan held tight to its ultra-loose monetary policy and boss Haruhiko Kuroda said officials would not move until prices rose “in a sustainable manner”, adding there would be no change “any time soon”.
However, it was still stronger than the levels near 152 seen Friday that reportedly saw authorties intervene. The yen’s losses have been fuelled by the widening gap between the monetary policies of the US and Japanese central banks.
Elsewhere, Shanghai, Sydney, Seoul, Taipei, Manila, Bangkok and Jakarta were also down, while London, Paris and Frankfurt opened in the red.
However, Singapore, Wellington and Mumbai edged up.
– Key figures around 0810 GMT –
Tokyo – Nikkei 225: DOWN 0.9 percent at 27,105.20 (close)
Hong Kong – Hang Seng Index: DOWN 3.7 percent at 14,863.06 (close)
Shanghai – Composite: DOWN 2.3 percent at 2,915.93 (close)
London – FTSE 100: DOWN 1.0 percent at 7,000.03
Euro/dollar: DOWN at $0.9950 from $0.9965 on Thursday
Pound/dollar: DOWN at $1.1517 from $1.1567
Dollar/yen: UP at 147.25 yen from 146.27 yen
Euro/pound: UP at 86.39 pence from 86.11 pence
West Texas Intermediate: DOWN 1.5 percent at $87.76 per barrel
Brent North Sea crude: DOWN 1.1 percent at $95.86 per barrel
New York – Dow: UP 0.6 percent at 32,033.28 (close)
