Global tech shares gyrate after earnings disappoint, yen tumbles

Global tech stocks continued a wild ride on Friday, while the dollar soared against the yen after a report that the Bank of Japan is leaning towards maintaining ultra-dovish monetary policy at its meeting next week.

Futures contracts for the Nasdaq 100 indicated Wall Street’s multi-trillion dollar tech index would open about 0.6% higher, a day after it fell 2.3% in its worst trading session since February.

The benchmark S&P 500 index was heading for a 0.2% gain at the open.

Following steep post-earnings plunges in Tesla and Netflix (NASDAQ:NFLX) earlier in the week, chipmaker TSMC on Friday warned of a drop in 2023 sales. A sub-index of European technology shares lost 1% on Friday.

The MSCI World index of global shares dipped 0.3%, while Europe’s Stoxx 600 share index was flat.

The Nasdaq 100 remains 41% higher year to date, prompting profit-taking amid concerns about tech stock valuations, which have been supported by exuberance about the potential of artificial intelligence.

“The market got very over-bought,” said Patrick Spencer, vice chair of equities at Baird. “If you haven’t played this market, you’ve missed out.”

A special rebalancing of the tech index due at the close of trading on Friday would also cause some “quirky price action” in tech mega-caps, Spencer said.

The overhaul of the index – designed to reduce its heavy weightings of tech giants like Microsoft (NASDAQ:MSFT) and Apple (NASDAQ:AAPL) – may exacerbate moves in these stocks during the ongoing earnings season, Spencer added. But he also predicted that ever-optimistic tech investors would use sustained price weakness as a “chance to reload.”

YEN ON THE RUN

Meanwhile, the dollar soared against the yen after sources familiar with the Bank of Japan’s thinking said it was likely to maintain its controversial policy of controlling government bond yields to suppress domestic debt costs.

The dollar jumped as much 1.3% on the day to purchase 141.8 yen. Just a week ago, it was trading below 138.

As Japanese inflation has stayed above the BoJ’s target, traders have bet on the central bank ditching its yield curve control programme, in a move expected to cause the yen to strengthen.

“Markets were building up expectations which now look unlikely to play out,” said Guillaume Paillat, a multi-asset manager at Aviva (LON:AV) Investors.

Japan’s benchmark 10-year government bond yield fell 4 bps to 0.41%, the lowest level since July 6, right before speculation for a hawkish tweak to policy this month began to ramp up.

It was set for its biggest one-day fall since April.

The U.S. Federal Reserve and the European Central Bank also meet next week, with both expected to raise rates again after their most aggressive monetary tightening cycle in decades.

The Fed’s outlook will be watched closely as the U.S. central bank balances above-target inflation in an economy that appears to be plodding along, with the potential for rate rises implemented so far to cause a deep recession.

In bond markets, Treasuries settled down after spending the previous session braced for further Fed hawkishness in response to an unexpected drop in weekly unemployment claims.

Two-year Treasury yields, which track interest rate expectations, were flat at around 4.84% after climbing 8 bps the day before.

Ten-year Treasury yields were also steady at 3.854% after spiking 11 bps the previous day.

Elsewhere, Brent crude oil futures were up 1.3% at $80.65 per barrel.

Spot gold was 0.2% lower at $1,964 per ounce.