Asian stock markets faced a decline on Thursday, primarily attributed to disappointing earnings forecasts from Meta Platforms, the parent company of Instagram. Meta’s announcement of lower-than-expected revenue and higher expenses for the current quarter caused a 15% plunge in its shares during extended trading. This decline had a ripple effect on the tech sector, triggering a sell-off in both U.S. and Asian tech-related stocks.
The broader MSCI Asia-Pacific index excluding Japan experienced a drop of 0.7%, primarily driven by a 1.3% decline in Japan’s Nikkei index. Stock markets in China and Hong Kong also faced losses, with the CSI300 index of blue-chip stocks in China falling by 0.3% and Hong Kong’s Hang Seng Index decreasing by 0.5%.
This week’s earnings season has placed tech giants under the spotlight, with Alphabet, Microsoft, and Intel scheduled to release their financial results later on Thursday. According to Chris Weston, the head of research at Pepperstone, investors are expecting strong performance from these companies, as underperformance could lead to further market sell-offs.
Prior to the disappointing Meta earnings news, tech stocks had received a boost on Wednesday after Tesla announced plans to introduce new models by early 2025 utilizing existing platforms and production lines.
Beyond corporate earnings, investors will closely monitor the release of U.S. first-quarter gross domestic product (GDP) data on Thursday and personal consumption expenditures (PCE), the Federal Reserve’s preferred inflation gauge, for March on Friday.
A hotter-than-expected consumer price inflation report for March has pushed back expectations of when the Fed will begin cutting interest rates. The CME FedWatch Tool indicates a 70% probability of a September start for rate cuts, with traders pricing in 43 basis points of easing in 2024, significantly lower than the 150 basis points anticipated earlier this year.
The shifting expectations surrounding U.S. interest rates have contributed to a rise in Treasury yields and the U.S. dollar, impacting the currency market. The U.S. dollar index, which measures the value of the dollar against a basket of currencies, remained relatively stable at 105.75, but 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 ascent, depreciating by 9% this year and becoming the worst-performing G10 currency. On Thursday, the yen traded at 155.445 per dollar, reaching a 34-year low of 155.45 earlier in the session and breaching the key 155 yen level that some traders viewed as a potential trigger for intervention by Tokyo.
The Bank of Japan (BOJ) initiated its two-day policy meeting on Thursday to discuss monetary policy, with expectations that the central bank will maintain its short-term interest rate target unchanged. However, attention will be focused on BOJ Governor Kazuo Ueda’s comments as he navigates the delicate balance of exiting ultra-easy rates without causing excessive currency volatility.
Governor Ueda will be mindful of the events of 2022, when dovish remarks from his predecessor triggered a yen plunge that forced Tokyo to intervene, reportedly spending approximately $60 billion to support the currency.
According to Kieran Williams, head of Asia FX at InTouch Capital Markets, the dollar/yen pair appears to be trading in line with relative interest rate spreads, indicating that the Ministry of Finance would face significant challenges if it were to intervene. Williams suggests that if the dollar/yen pair continues to rise after the BOJ meeting, officials may consider taking action, particularly given Finance Minister Suzuki’s previous statements about the potential for intervention.
Takao Ochi, a Japanese ruling party executive, informed Reuters that the party is not currently engaged in active discussions about specific yen levels that would warrant intervention. However, if the currency continues to slide towards 160 yen per dollar, policymakers may be prompted to act.
In the commodities market, oil prices experienced a slight decline as concerns about a potential slowdown in the U.S. economy outweighed 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 decreased by 0.03% to $87.99 per barrel. Spot gold, on the other hand, gained 0.2% to $2,320.32 per ounce.
