(Bloomberg) — European equity futures declined alongside Asian stocks Thursday 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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Contracts for the Euro Stoxx 50 slid 0.6% as the MSCI Asia Pacific Index dropped by the most in more than three months. Japan’s Nikkei 225 Stock Average headed for a technical correction, while South Korea’s benchmark lost nearly 2% with chipmaker SK Hynix Inc. tumbling despite an earnings beat. US stock index futures climbed after the S&P 500 slumped 2.3%.
“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.”
Investors are watching US GDP and initial jobless claims data, due to be released later Thursday, for further evidence of the economy’s health.
The yen climbed as much as 1.1% against the dollar. 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.
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. Stocks in Hong Kong and the mainland 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 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 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.
Oil fell, joining a broad retreat in commodities, as a soft economic outlook for China outweighed lower US stockpiles. Gold extended losses from Wednesday. Digital assets, such as Bitcoin and Ether, also slid.
Key events this week:
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Germany IFO business climate, Thursday
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US GDP, initial jobless claims, durable goods, Thursday
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US personal income, PCE, consumer sentiment, Friday
Some of the main moves in markets:
Stocks
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S&P 500 futures rose 0.2% as of 6:38 a.m. London time
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Nikkei 225 futures (OSE) fell 3%
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Japan’s Topix fell 2.8%
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Australia’s S&P/ASX 200 fell 1.2%
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Hong Kong’s Hang Seng fell 1.7%
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The Shanghai Composite fell 0.6%
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Euro Stoxx 50 futures fell 0.6%
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Nasdaq 100 futures rose 0.2%
Currencies
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The Bloomberg Dollar Spot Index was little changed
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The euro was little changed at $1.0842
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The Japanese yen rose 0.7% to 152.78 per dollar
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The offshore yuan rose 0.5% to 7.2539 per dollar
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The Australian dollar fell 0.5% to $0.6548
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The British pound fell 0.1% to $1.2891
Cryptocurrencies
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Bitcoin fell 2.8% to $64,224.76
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Ether fell 5.5% to $3,191.01
Bonds
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The yield on 10-year Treasuries declined two basis points to 4.26%
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Japan’s 10-year yield declined one basis point to 1.065%
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Australia’s 10-year yield declined one basis point to 4.31%
Commodities
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West Texas Intermediate crude fell 0.9% to $76.91 a barrel
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Spot gold fell 1% to $2,372.57 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Winnie Hsu.
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