Markets plunge after disappointing US financials

• European tech stocks fall after big drop in US mega-capitals
• Nasdaq rebalancing could cause 'freaky' price action
• Markets are waiting for news from the Fed, the ECB and the Bank of Japan next week
• Dollar rises against yen as BOJ speculation on tightening eases

Global equities slipped on Friday after disappointing tech earnings undermined risk appetite, while the dollar rose sharply against the yen after a report that the Bank of Japan is leaning towards maintaining its yield curve control policy next week.

The MSCI Global Global Equity Index (.MIWO00000PUS) , which is up more than 16% this year, fell 0.3%. The European STOXX 600 (.STOXX) was flat, while the German Dax (.GDAXI) fell 0.3%.

After Tesla (TSLA.O) and Netflix (NFLX.O) plummeted earlier in the week and chip maker TSMC (2330.TW) warned of falling sales in 2023, the European tech stock sub-index shed 0.9%.

The move comes after the high-tech-focused Nasdaq (.IXIC) Wall Street stock index fell 2% on Thursday, its biggest single-day drop since March. Investors took profits amid concerns about the valuation of technology stocks, which were buoyed by enthusiasm for the potential of artificial intelligence, which has helped Nasdaq gain about 40% since the beginning of the year.

“The market has become very overbought,” said Patrick Spencer, vice chairman of Baird Equity. "If you haven't played this market, you're missing out on a lot."

A special rebalancing of the multi-trillion-dollar Nasdaq 100 (.NDX), set to take place at Friday's close, will also set off "bizarre price action" in tech megacapitals, Spencer said.

Spencer added that a revision of the index, designed to reduce its weight to tech giants such as Microsoft and Apple, could exacerbate those stocks' performance during the current reporting season. But he also predicted that the ever bullish tech investors would use sustained price weakness as "an opportunity to reset."

Futures trading showed that the S&P (.SPX) and the Nasdaq 100 would each add about 0.2% in early New York trading.

YEN ON THE RUN
The dollar hit its biggest single-day gain against the yen in a month after BOJ insiders said central bank officials are leaning towards maintaining their yield control policy at next week's policy meeting.

"Markets were building up expectations" of an end to the Bank of Japan's ultra-dove policy, "which now looks unlikely," said Guillaume Payat, multi-asset manager at Aviva Investors.

The dollar jumped 1.3% on the day to 141.8 yen, the biggest rise since the end of April. Just a week ago, it was trading below 138.

The underlying yield on Japan's 10-year government bonds fell 5 basis points to 0.41%, its lowest level since July 6, just before rumors of a hawkish policy adjustment began to mount this month.

The US Federal Reserve and the European Central Bank will also meet next week, and both are expected to raise rates again after the most aggressive monetary tightening cycle in decades.

The Fed's outlook will be closely watched as the US central bank balances above-target inflation in an economy that appears to be slowly moving forward, with the potential for rate hikes realized so far to trigger a deep recession.

In the bond markets, Treasuries calmed down after spending the previous session bracing for more Fed belligerence in response to an unexpected decline in weekly jobless claims.

The 2-year Treasury yield, which tracks interest rate expectations, was flat during the day at about 4.84% in European trading.

The 10-year Treasury yield was flat at 3.854% after jumping 11 basis points the day before.

Elsewhere, oil prices were higher. Brent crude futures rose 1% to $80.41 a barrel, while West Texas Intermediate crude futures rose 1% to $76.40.

Gold prices have not changed at the level of 1970 dollars per ounce.