Asian stock markets experienced a downturn as enthusiasm over artificial intelligence (AI) began to wane, impacting the bullish trend seen earlier this year. The Japanese yen strengthened for a fourth consecutive day, buoyed by expectations surrounding the upcoming Bank of Japan (BOJ) meeting.
Japanese and South Korean equities both fell by over 2%, with chip manufacturer SK Hynix Inc. experiencing a sharp 8.4% drop despite reporting robust earnings. Stocks in Hong Kong and mainland China also saw declines. In the United States, the S&P 500 plummeted 2.3%, marking its most significant drop since December 2022.
The yen’s value surged notably early Thursday, continuing a rally that began the previous day, where it gained more than 1% against the dollar. This rise is attributed to a reduction in carry trades, with the yen reaching its strongest levels against the greenback since May.
“We are seeing increasing concern among those betting against the yen, especially with the potential for tighter Japanese monetary policy next week, contrasting with anticipated rate cuts from the Federal Reserve and the European Central Bank,” noted Wei Liang Chang, a macro strategist at DBS Bank Ltd. “Further yen appreciation leading up to the BOJ meeting next week cannot be ruled out.”
Former New York Fed President William Dudley advocated for a reduction in borrowing costs at the next Fed meeting. Analysts view such a move as potentially alarming, suggesting a hasty attempt to prevent a recession. Later Thursday, the U.S. will release GDP and initial jobless claims data, offering further insights into economic health.
In China, the People’s Bank of China reduced its medium-term lending facility rate from 2.5% to 2.3% on Thursday, following a surprise cut in a key short-term rate aimed at boosting the slowing economy. Consequently, the nation’s 10-year bond futures saw an uptick.
The U.S. dollar index showed little change on Thursday, following a flat performance the previous day. The Canadian dollar continued its decline after the Bank of Canada cut rates for the second consecutive meeting and indicated further easing. In the Philippines, the central bank suspended currency trading for a second day due to Typhoon Gaemi.
Tech Sector Retreat
The tech-heavy Nasdaq 100 dropped 3.7%, primarily due to declines in major tech stocks. Alphabet Inc. fell 5% amid higher-than-expected spending, while Tesla Inc. saw a 12% plunge following delays in its Robotaxi project. U.S. Treasuries rallied during Asian trading hours after the bond yield curve steepened, reflecting expectations of an impending Fed rate cut.
The tech sector, which had driven market gains throughout 2024, faced a setback as traders shifted focus from large-cap tech stocks to other market segments. This rotation, combined with ongoing concerns about AI’s future returns, contributed to the sector’s struggles.
“Tech’s issue extends beyond disappointing earnings; the sector is still entangled in the significant rotation that began with the June CPI report,” explained Adam Crisafulli of Vital Knowledge. “Many believed this anti-tech rotation would be short-lived, but its persistence is intensifying anxiety and prompting further sell-offs.”
The recent declines in tech stocks have slightly deflated their valuations. While this could present opportunities for buying on dips, the earnings season is only beginning, with major companies like Apple Inc., Microsoft Corp., Amazon.com Inc., and Meta Platforms Inc. set to report their results next week.
In commodities, oil prices fell on Thursday after breaking a four-day losing streak, while gold extended its losses from the previous session.
