Asian shares subdued after US tech falters, dollar and yields hold gains

SYDNEY, July 21 (Reuters) – Asian shares were subdued on Friday after earnings reports from Tesla and Netflix failed to dazzle, while the dollar and government yields held up ahead of an action-packed week that could see the end of the U.S. tightening cycle.

European shares were set for a lower open, with EUROSTOXX 50 futures off 0.3%. S&P 500 futures and Nasdaq futures rose 0.1%.

In addition to meetings with the US Federal Reserve and the European Central Bank next week, the Bank of Japan will meet amid speculation of impending policy adjustments. Early on Friday, Japan’s inflation remained above the central bank’s 2% target for a 15th straight month in June, but the rise matched a median market forecast.

MSCI’s broadest index of Asia-Pacific shares outside Japan ( .MIAPJ0000PUS ) fell 0.5%, on course for a weekly loss of 1.8%. Meanwhile, Japan’s Nikkei (.N225) lost 0.6%.

A technology sub-index (.MIAPJIT00NUS) fell 2.2%. Shares of Taiwanese chipmaker TSMC ( 2330.TW ) fell 3.3%, after the world’s largest contract chipmaker reported a 10% decline in sales in 2023.

China’s blue chips (.CSI300) wobbled 0.2% while Hong Kong’s Hang Seng Index (.HSI) rose 0.4%.

The yuan was capped on Friday after authorities stepped up efforts to defend a weakened currency, along with purchases of yuan from state-owned banks.

Concerns are also growing over the health of Chinese property developers, after rating agencies warned Wanda Commercial could default on its debt repayments. Country Garden (2007.HK) dollar bonds fell on Friday.

“China’s property sector has entered its longest downward trend in two decades, and the worst may not be over,” said Betty Wang, senior China economist at ANZ.

“At the current stage, no single panacea is available. Multifaceted efforts are needed to prevent further landslides.”

The expectation of more policy support is building up ahead of the Politburo meeting at the end of July. Beijing on Friday launched some new measures to help auto and electronics consumption, which failed to generate much excitement in the market.

On Wall Street, after rising nearly 40% since the turn of the year, the Nasdaq ( .IXIC ) fell 2% overnight, its biggest one-day loss since March, driven by steep post-earnings declines in megatech stocks Tesla ( TSLA.O ) and Netflix ( NFLX.O ).

The electric vehicle maker reported a fall in second-quarter gross margins to a four-year low, while the streaming video company’s quarterly revenue fell short of estimates.

An unexpected drop in weekly US jobless claims also fueled expectations of a strong payrolls report, after markets braced for higher interest rates in the US and Europe.

They raised the chance of another Fed hike by November to 33%, and slightly reduced the size of rate cuts next year to just under 100 basis points.

Ten-year Treasury yields were broadly flat in Asia at 3.8487%, having gained 11 basis points overnight, while two-year yields were flat at 4.8286%, having gained 8 bps overnight.

The US dollar index was little changed at 100.78, after rising 0.5% overnight, its biggest one-day gain since mid-May. The Australian dollar gave up almost all of the gains made after a strong release of local jobs data to hover below 68 cents.

Markets look ahead to next week when the Fed, the European Central Bank and the BOJ meet to decide their policies and discuss the outlook for interest rates.

“While we expect July to bring the Fed’s last rate hike of this cycle, we don’t think the Fed is comfortable signaling this shift yet. Rather, policymakers appear more comfortable maintaining a hawkish stance for now,” analysts at TD Securities said.

Elsewhere, oil prices were higher. Brent crude futures rose 0.8% to $80.27 a barrel, and US West Texas Intermediate crude futures rose 0.8% to $76.25.

Gold prices were flat at $1,969.95 an ounce.

Reporting by Stella Qiu; Editing of Lincoln Feast

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