An electronic stock board showing the Nikkei 225 Stock Average figure displayed inside the Kabuto One building in Tokyo, Japan, on Thursday, 1 June 2023. The MSCI Asia Pacific Index declined 1.5% to the lowest since last month, as Japan’s Nikkei 225 Stock Average headed for a technical correction. South Korea’s benchmark lost nearly 2%, with chipmaker SK Hynix Inc. tumbling as much as 8.9% even after an earnings beat. In the US, the S&P 500 slumped 2.3%, its worst showing since December 2022.
“There seems to be a broad reassessment on the cost and benefit calculus for the artificial intelligence ecosystem,” said Homin Lee, senior macro strategist at Lombard Odier Singapore Ltd. “Anxieties about consumer demand also persist due to hints of softening data in the US. These worries could prove temporary in the end, but a collective reappraisal by investors is natural after such a furious rally.”
The yen climbed sharply 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 as traders start positioning for a potential policy rate hike by the BOJ.
“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. Stocks in Hong Kong and the mainland still fell.
In the Philippines, the nation’s central bank suspended currency trading for a second day due to Typhoon Gaemi. Taiwan’s market remained closed due to Gaemi, meaning Asian chip heavyweight Taiwan Semiconductor Manufacturing Co. is not trading again on Thursday.
An index of dollar strength was little changed Thursday after a similarly flat Wednesday.
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 Fed is 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 favour 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.