SYDNEY (Feb 3): A global stock rally ran into resistance in Asia on Friday (Feb 3) as disappointing earnings from US tech giants undermined sentiment, while the US dollar regained some of its footing ahead of a key US non-farm payrolls report.
European markets are set to extend the caution, with pan-region Euro Stoxx 50 futures down 0.1%, German DAX futures falling 0.2%, and FTSE futures mostly flat.
Overnight, markets took a dovish view on rate guidance from the European Central Bank (ECB)and the Bank of England (BOE), hoping that an end of the massive global tightening cycle is in sight, pushing local bonds higher and the currencies lower.
MSCI's broadest index of Asia-Pacific shares outside Japan eased 0.6% on Friday, dragged down by a 1.3% slump in Chinese blue-chips and a 1.4% tumble in Hong Kong's Hang Seng index.
Investors are waiting to see more tangible signs of an economic recovery in China, after Beijing dropped nearly all of its Covid curbs in December, sparking a surge in foreign inflows.
Other regional markets eked out modest gains. Japan's Nikkei rose 0.3%, Australia's resources heavy shares rallied 0.6% and South Korea's KOSPI climbed 0.5%.
Disappointment over earnings results from Google, Apple and Amazon tempered sentiment, with the S&P 500 futures sliding 0.5% and Nasdaq futures falling 1.5% on Friday.
Tech shares took a beating in Thursday's after-hours trading, with shares of Apple down 3.2%, Amazon down 5% and Google parent Alphabet down 4.6%.
Apple projected another revenue decline in the start of the year, Amazon warned that its operating profit could fall to zero in the current quarter, and Google parent Alphabet missed expectations in its fourth-quarter profit and revenue.
That took the shine off a strong regular trading session on Thursday, when the S&P climbed 1.5% and the Nasdaq surged 3.3%. The uptick built on strong gains from the previous day after Federal Reserve Chair Jerome Powell said disinflationary pressures are underway in the economy, raising hopes that a pause to its monetary tightening streak is near.
Investors are also watching the fallout from this week's plunge in shares of India's Adani group, which continued to nosedive on Friday with market losses amounting to US$115 billion in the wake of a US short-seller's report.
On Thursday, the ECB and BOE hiked rates by 50 basis points (bps) each, with the BOE saying the tide was turning against inflation and the ECB indicating at least one more hike was on the horizon before re-evaluating its rate hike path.
Markets reacted by pushing European yields sharply lower, with the 10-year German bunds falling 22.6 bps to 2.065%, the biggest drop since 2011, and Italian bonds tumbling 40 bps to 3.887%, the most since 2020.
"The wash-up is that the BOE meeting was dovish, and the ECB is now firmly open-minded and data-dependent, and the Fed chose not to fight the market and the market feels validated by that," said Chris Weston, head of research at Pepperstone.
Alan Ruskin, macro strategist at Deutsche Bank, said that given the current market price action ahead of the US payrolls data, a softer report would be regarded as endorsing all the favourite trades of the year.
"Not least it would provide the most important evidence to date to suggest that the market's rates pricing is more appropriate than the Fed's own more hawkish signalling," said Ruskin.
Analysts expect 185,000 jobs were added last month, the lowest since January 2021, unemployment edged up to 3.6%, and hourly wage inflation to stay flat at 0.3% on a monthly basis, suggesting the strong labour market might have started to ease up.
Futures markets still favour another 25-basis-point hike from the Fed at its March policy meeting, while implying that might be the end of its current tightening cycle. They have also priced in one rate cut by the end of this year, a scenario Powell dismissed.
In the currency markets, the euro extended losses to US$1.0889, pulling further away from the ten-month top of US$1.1033 touched on Thursday.
Sterling fell to US$1.2213 on Friday, the lowest in more than two weeks, after tumbling 1.2% the previous session.
That helped the US dollar to recoup most of its post-Fed losses, with the dollar index now standing at 101.85, away from its nine-month low of 100.80.
Treasury yields held largely steady. The yield on benchmark 10-year Treasury notes eased 2 bps to 3.3726%, while the two-year yield, which rises with traders' expectations of higher Fed fund rates, was mostly flat at 4.0918%.
In the oil market, Brent crude futures reversed earlier gains and slid 0.2% to US$82.01 per barrel, while US West Texas Intermediate (WTI) crude was also down 0.2% at US$75.70.
Gold was 0.2% higher. Spot gold was traded at US$1,915.66 per ounce.