Asian shares didn’t quite catch the fireworks after those earnings reports from Tesla and Netflix fizzled out. And to top it off, the dollar and Treasury yields are holding onto their gains, making for an action-packed week ahead with a potential end to the U.S. tightening cycle.
Seems like European shares are going to open on a downer, with EUROSTOXX 50 futures down 0.3%. On the other hand, S&P 500 futures and Nasdaq futures are showing a glimmer of hope, up 0.1%.
Next week is going to be a real rollercoaster, with the U.S. Federal Reserve, European Central Bank, and the Bank of Japan meetings all lined up. Rumor has it that the Bank of Japan might just be planning some policy tweaks. They’re keeping a close eye on Japan’s inflation, which has managed to stay above the central bank’s 2% target for the 15th month in a row, but it’s not exactly exceeding expectations.
Over in the Asia-Pacific region, things are a bit rocky with MSCI’s broadest index slipping 0.5%. Ouch, it’s looking at a 1.8% loss for the week. And Japan’s Nikkei isn’t faring any better, down 0.6%.
Technology is taking a hit too, with a 2.2% slide in the sub-index. Those Taiwanese chipmakers are feeling the burn, with TSMC slumping by 3.3% after warning of a 10% sales drop in 2023. Tough times ahead, it seems.
Meanwhile, China’s blue chips are teetering at 0.2%, while Hong Kong’s Hang Seng index is trying to keep its chin up with a 0.4% gain.
The yuan is playing it safe, staying in a tight range as authorities do their best to defend it from weakening. State-owned banks are even joining in with some yuan-buying trades to keep things in check.
But there are some storm clouds gathering over the Chinese property developers. Wanda Commercial is getting some major warning signs from rating agencies about potential debt default. And this has a ripple effect, with dollar bonds of Country Garden tumbling down.
Betty Wang, senior China economist at ANZ, says the property sector is going through its worst downtrend in the past two decades. Yikes! It’s going to take more than just a single fix to turn things around.
China is hoping for some policy magic when the politburo meeting comes around at the end of July. They’ve already released some measures to boost auto and electronics consumption, but the market isn’t exactly dancing with excitement.
Over on Wall Street, things got a bit messy after the Nasdaq took a 2% tumble, the biggest one-day loss since March. Those mega tech stocks Tesla and Netflix didn’t perform as expected. Tesla reported a drop in gross margins, and Netflix’s quarterly revenue fell short of estimates. Ouch, that hurt.
But there’s a silver lining with the unexpected fall in U.S. weekly jobless claims. It’s raising hopes for a strong payrolls report, but it also means the market is bracing for higher interest rates in the U.S. and Europe.
The Fed might be stepping up their game with another rate increase by November, and they’re not planning on generous rate cuts next year either.
In the midst of all this chaos, the ten-year Treasury yields are trying to stay cool, mostly flat in Asia at 3.8487%. They did spike up 11 basis points overnight, while the two-year yields are holding at 4.8286%, having gained 8 bps overnight.
The U.S. dollar index is keeping its cool too, little changed at 100.78, but it did make a 0.5% jump overnight, the biggest one-day gain since mid-May. Meanwhile, the Australian dollar gave up most of its gains after some strong local jobs data. It’s now chilling below 68 cents.
Next week is a big deal with the Fed, the European Central Bank, and the BOJ all getting together to decide their policy and debate the rate outlook.
Analysts at TD Securities think the Fed might be playing it coy, not quite ready to signal any big shifts just yet. They’re keeping that hawkish stance for now.
Oh, and let’s not forget about oil prices. They’re feeling pretty good with Brent crude futures up 0.8% at $80.27 per barrel and U.S. West Texas Intermediate crude futures rising 0.8% to $76.25.
Gold prices, on the other hand, are keeping things steady at $1,969.95 per ounce.
Phew, what a ride! It looks like we’re in for a wild week ahead. Hold on tight, folks!