Global shares subdued after US tech earnings disappoint

By Naomi Rovnick and Stella Qiu

LONDON, SYDNEY (Reuters) -Global stocks were subdued on Friday after earnings reports from Tesla (NASDAQ:) and Netflix (NASDAQ:) failed to dazzle and ahead of an action-packed week for central bank interest rate decisions.

The of global shares, which has risen more than 16% this year, held steady while Europe’s was flat.

Tech stocks dropped in Europe and Asia, however, following steep post-earnings plunges in Tesla and Netflix earlier in the week

Shares in Taiwan’s TSMC. the world’s largest chipmaker, fell 3.3% on Friday after it warned of a drop in 2023 sales and announced its first fall in quarterly profits since 2019. A sub-index of European technology shares lost 1.6%.

On Thursday, the Nasdaq fell 2%, its biggest one-day loss since March. Investors took profits amid concerns about tech stock valuations, which have been supported by exuberance about the potential of artificial intelligence that has helped the Nasdaq gain about 40% year-to-date.

“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 multi-trillion dollar 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:) and Apple (NASDAQ:) – 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

In currencies, the dollar headed for its largest one-day rise against the yen in a month after sources familiar with the Bank of Japan’s thinking said central bank officials were leaning towards maintaining its yield-control policy next week.

The dollar rose by as much as 0.66% on the day to a high of 141.00. Just a week ago, it was trading below 138.

The U.S. Federal Reserve and the European Central Bank 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 US 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.

Investors had “thought the game was about to be over, but it looks like we are going into extra innings,” said Ken Mahoney, chief executive of Mahoney Asset Management. “There will be a lot of destruction in the economy,” he added, if the Fed remains resolute to bring inflation down to its target of around 2%.

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

Two-year Treasury yields, which track interest rate expectations, were flat on the day at around 4.84% in early European trading on Friday.

Ten-year Treasury yields eased back 1 bp to 3.858% on Friday, after spiking 11 bps the previous day.

Germany’s 10-year Bund yield, a barometer for euro zone debt costs, was steady at 2.449%.

The eased 0.2% on Friday after advancing 0.5% overnight, the biggest one-day gain since mid-May.

Futures trading indicated the S&P and the Nasdaq 100 would add 0.2% each in early New York dealings.

Elsewhere, oil prices were higher. futures were up 1% at $80.41 per barrel and U.S. West Texas Intermediate crude futures rose 1% to $76.40.

Gold prices were flat at $1,970 per ounce.