Asian stock markets experienced a downturn on Thursday as disappointing earnings projections from Meta Platforms, the parent company of Instagram and Facebook, sent tech stocks plummeting. The Japanese yen’s ongoing decline, which surpassed the crucial 155-yen-per-dollar level for the first time since 1990, raised concerns about potential intervention by Japanese authorities. The tech stock sell-off had a ripple effect across the region, causing the MSCI Asia-Pacific index, excluding Japan, to fall by 0.7%. The Japanese Nikkei 225 index suffered a 1.3% loss, while China’s CSI300 and Hong Kong’s Hang Seng indexes declined by 0.3% and 0.5%, respectively.
The earnings season is in full swing this week, with tech giants Alphabet, Microsoft, and Intel scheduled to release their quarterly results later on Thursday. Chris Weston, head of research at Pepperstone, commented that if Meta’s performance is indicative, the market appears intolerant of merely meeting expectations. He noted that companies that have performed well in the first and second quarters need to exceed forecasts to avoid market punishment.
Despite a boost for tech stocks on Wednesday following Tesla’s announcement of plans to introduce new models by early 2025, investor focus shifted to economic data. The release of the first-quarter U.S. gross domestic product (GDP) data on Thursday and the personal consumption expenditures (PCE) index, the Federal Reserve’s preferred inflation gauge, for March on Friday, will be closely watched.
A hotter-than-expected consumer price inflation report for March has led to a reassessment of expectations regarding the timing of interest rate cuts by the Fed. Markets now anticipate a 70% chance that rate cuts will begin in September, according to the CME FedWatch Tool. Traders are pricing in 43 basis points of easing in 2024, significantly lower than the 150 basis points anticipated at the start of the year.
The shifting expectations for U.S. interest rates have contributed to higher Treasury yields and a stronger dollar, impacting the currency market. The U.S. dollar index, which measures the value of the dollar against a basket of currencies, remained largely unchanged at 105.75. However, the index has gained over 4% this year.
The Japanese yen, which is sensitive to U.S. Treasury yields, has borne the brunt of the dollar’s strength and is down 9% this year, making it the worst-performing G10 currency. On Thursday, the yen traded at 155.445 per dollar, having briefly touched a 34-year low of 155.45 earlier in the session. This breached the key 155 yen level that some traders had identified as a potential trigger for intervention by Japanese authorities.
The Bank of Japan (BOJ) began its two-day rate-setting meeting on Thursday to discuss monetary policy. Expectations are that the central bank will maintain its short-term interest rate target unchanged. However, attention will be on comments from BOJ Governor Kazuo Ueda as he navigates the challenge of gradually phasing out ultra-low interest rates without destabilizing the currency.
The BOJ chief is likely mindful of avoiding a repeat of the episode in 2022, when dovish remarks by his predecessor triggered a sharp sell-off in the yen, forcing Tokyo to intervene and spend an estimated $60 billion to defend the currency. Kieran Williams, head of Asia FX at InTouch Capital Markets, pointed out that the dollar/yen pair appears to be trading in line with relative interest rate spreads, indicating that the Ministry of Finance could face strong headwinds in any intervention efforts.
According to Takao Ochi, a ruling party executive, while Japan’s ruling party has not yet actively discussed specific yen levels that would warrant intervention, the currency’s slide towards 160 to the dollar could prompt policymakers to act.
In the commodities market, oil prices edged lower as concerns about a potential slowdown in the U.S. economy overshadowed worries about the risk of an escalating conflict in the Middle East. U.S. crude fell by 0.08% to $82.74 per barrel, while Brent crude slipped by 0.03% to $87.99 per barrel. Spot gold gained 0.2% to $2,320.32 an ounce.
