(Bloomberg) — European shares were set for a tepid start after Asian stocks were largely higher, as traders weighed firming expectations of Federal Reserve rate cuts against continued weakness in technology stocks.
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Euro Stoxx 50 futures were little changed, while contracts for US stocks rose after an overnight decline on Wall Street. The yen gained against the dollar while government bonds held steady ahead of key US inflation data later on Friday.
Stocks in Australia, Japan, Hong Kong and South Korea rose along with U.S. stock futures contracts on Friday. Chinese stocks in Hong Kong and the mainland fluctuated.
Taiwanese shares were the worst performers, falling as much as 4.3% as trading resumed after disruptions caused by Typhoon Gaemi. The declines marked a catch-up on earlier technology-related declines in global stock markets and included a sharp decline for Taiwan Semiconductor Manufacturing Co., which fell as much as 6.5%.
Asian stocks are poised for their first consecutive weekly losses since May as the global rotation out of tech stocks – particularly those benefiting from the AI boom – and towards this year’s laggards accelerated this week. A benchmark for Asia’s technology stocks posted a third straight day of losses.
“We are still not talking about a peak in Asian AI, but it feels like we are getting closer,” strategists at HSBC Holdings Plc, including Herald van der Linde, wrote in a note. The momentum is shifting quickly and “we are now even more convinced that the sector deserves close attention.”
Chinese government bond yields fell to a new record low as the bond rally continued, testing policymakers’ resolve to reverse the move. Meanwhile, the CSI 300 Index suffered its worst week since early February as traders looked for safe assets amid a faltering economic recovery.
“The policy stimulus appears ineffective for market sentiment until it translates into an earnings boost,” said Marvin Chen of Bloomberg Intelligence. “From that perspective, the upcoming earnings season in August could be a catalyst, but expectations are not high.”
The yen traded below 154 per dollar in erratic trading, heading for its fourth day of gains in five sessions. Inflation in Tokyo accelerated for a third month in July, reinforcing expectations of a possible rate hike when the central bank’s policy board meets next week.
“To convincingly get below 150, we need the Fed to actually deliver, or see much more in the way institutional Japan sells foreign bonds,” said Tim Baker, head of Macro Research at Deutsche Bank AG, on Bloomberg Television.
The yen’s rally remains fragile, with only 30% of BOJ watchers surveyed by Bloomberg predicting a rise, even though more than 90% see this as a risk.
A pullback towards 155.30 per dollar is “not out of the question” ahead of the BOJ meeting, said Tony Sycamore, an analyst at IG Australia Pty. “After that, however, all bets are off.”
Growth is accelerating
U.S. 10-year yields were little changed in Asian trading after falling four basis points on Thursday as U.S. Treasury yields rose. The gains for U.S. government bonds came as traders weighed signals of a resilient U.S. economy against calls for faster rate cuts from the Federal Reserve. The swap market is currently pricing in the first interest rate cut of September.
On Thursday, the S&P 500 fell 0.5%, while the Nasdaq 100 fell 1.1% as tech giants including Nvidia Corp. and Microsoft Corp., collapsed. Small caps outperformed, a sign that investors are preparing for rate cuts that will support the broader economy.
Economic growth accelerated more than forecast in the second quarter, showing demand is holding up under the weight of higher borrowing rates. A closely watched measure of underlying inflation rose 2.9%, down from the first quarter but still above estimates.
Strong US GDP growth “is good for non-tech stocks,” Hamza Ayub, executive director and portfolio manager at Farro Capital, told Bloomberg TV. “If the market remains strong, we will continue to see catching up and improvement in market breadth.”
The US will close out the week based on the monthly PCE data, the last big data point before next week’s Fed meeting. The headline figure is expected to slow to near the central bank’s 2% annualized target.
“After last night’s upside surprise from the GDP price deflator, there are concerns about the upside risk to the current consensus estimate for the PCE Index,” said Kyle Rodda, senior market analyst at Capital.Com. “While a modest upside surprise would not necessarily derail the path back to the inflation target, it could impact the expected timing of the first cut and the number of cuts that could occur over the next six months.”
In business news, Mercedes-Benz Group AG’s second-quarter profits fell 19% as sales of electric passenger cars fell sharply and demand in China weakened. Meanwhile, Eni SpA raised its full-year profit forecast. Second quarter profit was better than expected.
In commodities, West Texas Intermediate limited initial gains as it cruised to its third straight day of gains. Gold went higher.
Some of the major moves in the markets:
Shares
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S&P 500 futures rose 0.4% as of 2:47 p.m. Tokyo time
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Nasdaq 100 futures rose 0.5%
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The Japanese Topix was little changed
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Australia’s S&P/ASX 200 rose 0.8%
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Hong Kong’s Hang Seng rose 0.2%
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The Shanghai Composite fell 0.2%
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Euro Stoxx 50 futures were little changed
Currencies
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The Bloomberg Dollar Spot Index was little changed
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The euro rose 0.1% to $1.0858
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The Japanese yen rose 0.2% to 153.70 per dollar
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The offshore yuan fell 0.2% to 7.2529 per dollar
Cryptocurrencies
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Bitcoin rose 2.5% to $66,876.15
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Ether rose 3.3% to $3,258.21
Bonds
Raw materials
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West Texas Intermediate crude was little changed
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Spot gold rose 0.4% to $2,373.54 an ounce
This story was produced with the help of Bloomberg Automation.
–With help from John Cheng, Zhu Lin and Winnie Zhu.
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