World share markets were down for a second day running on Friday as a near $1 trillion weekly wipeout in top tech stocks outweighed hopes of a slowdown in Fed and ECB rate rises and news that the U.S. economy is not in recession yet.
European shares were down nearly 1% as Thursday’s weak forecasts from Amazon and Apple sent the tech sector down over 2% and the prospect of renewed COVID curbs in China hit mining and oil firms.
In the bond markets, borrowing costs were also starting to creep up again although what analysts had described as a dovish ECB meeting on Thursday meant Germany’s 10-year Bund yields were set for their biggest weekly fall since October 1987.
The yen was weakening again too in the FX markets after Bank of Japan Governor Haruhiko Kuroda said it did not “plan to raise interest rates or head for an exit (from ultra low interest rates) any time soon” despite raising inflation forecasts.
Heavy falls in China meant Asia-Pacific shares ex-Japan were closing 1.9% lower at 432 points which was just above a 2-1/2-year low touched on Monday.
MSCI’s main world index which tracks 47-countries was down 0.5% on the day although it, like both European and U.S. markets, was heading for its third weekly rise in the last four.
It has been disappointing earnings forecasts that have hit markets in recent days.
Amazon.com and Apple were the latest tech behemoths to face heavy punishment from investors for their numbers on Thursday and nearly $1 trillion could be wiped off the big U.S. tech giants this week alone.
Facebook parent company Meta has plunged 25% bringing its year-to-date slump to 70% or over $670 in value terms, while Apple’s disappointing forecast for the traditionally lucrative holiday season had sent it shares down 13% after hours.
“If sustained today that would drop it to a market cap of below $1 trillion. In November last year we were as high as $1.9 trillion, so quite a fall to say the least,” said Deutsche Bank strategist Jim Reid.
The BOJ’s widely expected move in Tokyo to keep its policy loose had come after the European Central Bank raised interest rates 75 bps the previous day, but said that “substantial” progress had already been made in its bid to fight off a surge in inflation.
Investors are now turning their attention to the Federal Reserve meeting next week. While a 75 basis point rate hike at the conclusion of its Nov. 1-2 policy meeting is all but assured, the likelihood of a smaller, 50 basis-point hike in December was 55%, according to CME’s FedWatch tool.
“I don’t think there will be any surprise here (in terms of rate hike), but it will be more on the message that the Fed will deliver,” said Societe Generale’s Benzimra.
The less hawkish comments from the ECB added to expectations that central banks are likely to slow the pace of monetary tightening, especially after the Bank of Canada surprised the market by delivering a smaller-than-anticipated rate hike on Wednesday.
Markets have started to trade a Fed pivot again, but this is defined as hiking in smaller increments, not as a “proper” pivot from hikes to cuts, according to Citi strategists, noting that an actual pause is still some time away.
“No Powell Pivot, No Santa?” Citi’s emerging economy analysts asked, referring to the so-called “Santa rally” that markets often see towards the end of the year.
Over in China, the stock market fell 2.25%, with Hong Kong’s Hang Seng Index down 3.6%, rounding up a rough week. Bleak industrial profit figures and widening COVID-19 outbreaks have all weighed on sentiment.
The dollar index was up 0.3% on the day but down for a second week in a row. The euro was down below parity again at $0.9944, while the BOJ’s stance pushed the yen down 0.8% to 147.43 to the dollar.
Oil prices also fell 1.3% to $95.7 a barrel for Brent crude. But they were also poised for fourth weekly rise in the last five and many market veterans see prices staying around $100 barrel in the coming months.