The dollar and Treasury yields held gains on Friday ahead of a busy week that may mark the end of the U.S. tightening cycle as Tesla (NASDAQ:TSLA) and Netflix (NASDAQ:NFLX) dragged on U.S. tech companies after their quarterly reports. Along with the US Federal Reserve’s meeting the next week, the Bank of Japan will also convene amid rumors of impending policy changes. For the fifteenth consecutive month in June, Japan’s inflation remained over the central bank’s target of 2%, but increases were in line with market expectations. The largest MSCI index of Asia-Pacific stocks outside of Japan down 0.5%, bringing the weekly loss to 1.8%. Meanwhile, the Nikkei in Japan fell 0.3%. The world’s largest contract chipmaker warned of a 10% decline in 2023 revenues, which sent shares of Taiwanese chipmaker TSMC plunging more than 3% on Friday.
Blue-chip stocks in China fell by 0.2%, but the Hang Seng index in Hong Kong defied the trend and rose by 0.4%. Following the central bank’s considerably stronger than anticipated guiding rate announcement, the onshore yuan increased by 0.2% to trade at 7.1674 per dollar. Authorities and state-owned banks have recently increased their attempts to preserve a declining currency. After rating agencies warned Wanda Commercial could miss its loan repayment deadline, worries are also growing over the soundness of Chinese real estate developers. After rising over 40% since the beginning of the year, the Nasdaq on Wall Street dropped 2% overnight, the most since March, due primarily to sharp post-earnings declines in the two largest tech firms, Tesla and Netflix. [.N]
In the second quarter, the manufacturer of electric vehicles reported a decline in gross margins to a four-year low, and the streaming video provider reported quarterly revenue that was below expectations. According to Tony Sycamore, market analyst at IG, “in the tech sector, a classic ‘buy the rumor, sell the fact’ type reaction played out for Tesla and Netflix.” To escape a similar fate, fellow tech giants Microsoft (NASDAQ:MSFT), Apple (NASDAQ:AAPL), Meta, and Amazon (NASDAQ:AMZN) will have to blow the roof down in their earnings releases the following week. Additionally, a surprise decrease in weekly unemployment claims in the United States fueled hopes for a solid payrolls data after investors bet the Federal Reserve would have stopped tightening after its final hike in July.
They somewhat increased the likelihood that the Fed will raise rates again by November to 33% and slightly decreased the magnitude of rate reduction in 2019 to little under 100 basis points. After jumping 11 basis points overnight, ten-year Treasury rates were largely unchanged in Asia at 3.8405%, while two-year yields maintained at 4.8259% after rising 8 bps overnight. The U.S. dollar index increased 0.5% over night, the largest one-day rise since mid-May, and closed at 100.78 with no change. The Australian dollar lost almost all of its gains following the release of positive local employment data, remaining below 68 cents.
The Fed, the ECB, and the BOJ will meet next week to decide on their policies and discuss the rate outlook, and the markets are anticipating this event. “While we believe that the Fed will raise rates for the final time this cycle in July, we do not believe the Fed is ready to announce that fact just yet. Instead, officials seem more at ease keeping their current aggressive posture, according to TD Securities analysts. Oil was more expensive elsewhere. U.S. West Texas Intermediate crude futures increased by 0.4% to $75.96 and Brent crude futures increased by 0.3% to $79.88 per barrel. Prices for gold were $0.2 per ounce higher at $1,972,99.
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