Global shares subdued after US tech earnings disappoint

Global stocks edged lower on Friday after disappointing tech earnings sapped risk appetite, while the dollar soared against the yen after a report that the Bank of Japan is leaning towards keeping its yield curve control policy in place next week. The MSCI World index of global shares, which has risen more than 16% this year, dipped 0.3%. Europe's STOXX 600 was flat and Germany's tech-heavy Dax slipped 0.3%. Following steep post-earnings plunges in Tesla and Netflix earlier in the week and chipmaker TSMC warning of a drop in 2023 sales, a sub-index of European technology shares lost 0.9%. The moves came after Wall Street's tech-heavy Nasdaq share index fell 2% on Thursday, 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 Nasdaq 100 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 and Apple - 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." Futures trading indicated the S&P and the Nasdaq 100 would each add around 0.2% in early New York dealings.

YEN ON THE RUN

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 at next week's policy meeting. "Markets were building up expectations," for an end to ultra-dovish BoJ policy, "which now looks unlikely to play out," said Guillaume Paillat, a multi-asset manager at Aviva Investors.

The dollar jumped 1.3% on the day to purchase 141.8 yen, its biggest rise since late April. Just a week ago, it was trading below 138. Japan's benchmark 10-year government bond yield sank 5 bps to 0.41%, the lowest level since July 6, right before speculation for a hawkish tweak to policy this month began to ramp up.

The U.S. Federal Reserve and the European Central Bank also 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 U.S. 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. 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 European trading. Ten-year Treasury yields were flat at 3.854% after spiking 11 bps the previous day.

Elsewhere, oil prices were higher. Brent crude 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.