Asian markets follow Wall Street losses after mixed tech results

While profits at Alphabet, Google’s parent company, beat estimates, Tesla, a member of the “Magnificent Seven,” reported a drop in profits – Copyright GETTY IMAGES NORTH AMERICA/AFP Drew Angerer

Asian markets fell on Wednesday after a series of mixed U.S. earnings results failed to boost enthusiasm as investors expected the technology sector to continue generating record profits after pouring billions into artificial intelligence.

Traders are also cautious as they assess the outlook for US politics after the election, with Democrats’ chances boosted by the expected nomination of Kamala Harris to replace Joe Biden and take on Donald Trump in November.

Stocks have been boosted largely this year by growing expectations that the Federal Reserve will cut interest rates on the back of slowing inflation and a softening labor market. Officials have recently indicated they are open to such a move soon.

The prospect of a more welcoming borrowing environment has greatly benefited tech companies, particularly as they have invested heavily in AI, seeing it as the next big revenue generator.

And earnings haven’t disappointed in most cases, helping to push their valuations higher, with chip giant Nvidia up about 150 percent for the year to date.

However, hopes for this earnings cycle were slightly dented Tuesday by news that electric car giant Tesla’s profits fell 45% in the second quarter due to price cuts and aggressive investments in AI.

Payments giant Visa reported revenue for its fiscal third quarter below estimates, although a forecast-beating report from Google parent Alphabet provided some support.

Alphabet and Tesla are among the “magnificent seven” tech kings who have played key roles in the market gains that have pushed Wall Street to multiple record highs in 2024.

The others — Apple, Amazon, Facebook parent company Meta, Microsoft and Nvidia — are expected to report results in the coming weeks.

“The Magnificent Seven’s earnings season kickoff didn’t exactly call for a ticker-tape parade on Wall Street, leaving mega-cap sentiment teetering on a high and unstable bar,” Stephen Innes said in his commentary on Dark Side Of The Boom.

All three major Wall Street indices ended slightly lower, with Asia largely following suit.

Tokyo, Shanghai, Hong Kong, Sydney, Singapore and Jakarta all fell, while Seoul and Wellington gained.

Manila and Taipei were closed due to a typhoon.

Investors are also awaiting the release of key data on U.S. economic growth on Thursday and the latest data on personal consumption expenditures – the Fed’s preferred gauge of inflation – which could play a role in policymakers’ thinking ahead of their next meeting.

But Innes warned: “Markets are betting that these indicators will give the Fed the green light to ease its efforts in September. However, any setback in the slowing inflation trend could add a twist to this Fed saga.”

Nonetheless, analysts at PGIM Fixed Income said in a note: “We expect at least a 25 basis point cut in 2024, with mid-December appearing as the most likely meeting for this decision.

“That said, the Fed could deliver another rate cut in the second half of 2024 if it gets the chance. If it’s unable to cut rates this year, it could delay those cuts until 2025, and we expect a total of 150 basis points of Fed rate cuts by next year.”

– Key figures around 02:30 GMT –

Tokyo – Nikkei 225: DOWN 0.2% to 39,508.84 (break)

Hong Kong – Hang Seng Index: DOWN 0.3% to 17,414.96

Shanghai – Composite: DOWN 0.2% to 2,910.17

Euro/dollar: DOWN to $1.0845 from $1.0855 on Tuesday

Pound/dollar: DOWN to $1.2895 from $1.2907

Dollar/yen: DOWN to 155.30 yen from 155.62 yen

Euro/pound: up to 84.11 pence from 84.08 pence

West Texas Intermediate: up 0.4% to $77.27 per barrel

North Sea Brent: up 0.4% at $81.34 per barrel

New York – Dow Jones: DOWN 0.1% to 40,358.09 points (closing)

London – FTSE 100: DOWN 0.4% to 8,167.37 (close)