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

Asian shares fell on Friday after Tesla and Netflix weighed on U.S. tech shares after their earnings reports, while the dollar and Treasury yields held their gains ahead of an action-packed week that could see the end of the U.S. tightening cycle.

As well as the U.S. Federal Reserve meeting next week, the Bank of Japan will meet amid speculation of imminent policy tweaks. Early on Friday, Japan's inflation stayed above the central bank's target of 2 per cent for the 15th straight month in June, but gains matched a median market forecast.

MSCI's broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) dropped 0.5 per cent, heading for a weekly loss of 1.8 per cent. Japan's Nikkei (.N225), meanwhile, lost 0.3 per cent.

Shares of Taiwanese chipmaker TSMC (2330.TW) slumped more than 3 per cent on Friday after the world's largest contract chipmaker flagged a 10 per cent drop in 2023 sales.

China's bluechips (.CSI300) dipped 0.2 per cent while Hong Kong's Hang Seng index (.HSI) bucked the trend with a gain of 0.4 per cent.

The onshore yuan was 0.2 per cent higher at 7.1674 per dollar after the central bank set a much stronger guidance rate than expected. Authorities have recently stepped up efforts to defend a weakening currency, alongside yuan-buying trades by state-owned banks.

Concerns are also brewing over the health of Chinese property developers, after rating agencies warned Wanda Commercial could default on its debt repayment.

On Wall Street, after rallying almost 40 per cent since the turn of the year, the Nasdaq (.IXIC) fell 2 per cent overnight, the biggest one-day loss since March, driven by steep post-earnings plunges in mega tech stocks Tesla (TSLA.O) and Netflix (NFLX.O).

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

"In the tech sector, a classic 'buy the rumour, sell the fact' type reaction played out for Tesla and Netflix," said Tony Sycamore, market analyst at IG.

"Fellow tech giants Microsoft, Apple, Meta and Amazon will need to shoot the lights out in their earnings reports next week to avoid a similar fate."

Also, an unexpected fall in the U.S. weekly jobless claims fuelled expectations for a strong payrolls report, after markets wagered the Federal Reserve will be mostly done tightening after one last hike in July.

They nudged up the chance of a second increase from the Fed by November to 33 per cent, and slightly pared back the size of rate cuts next year to just under 100 basis points.

Ten-year Treasury yields were mostly flat in Asia at 3.8405 per cent, after spiking 11 basis points overnight, while two-years held at 4.8259 per cent, having gained 8 bps overnight.

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

Markets are looking ahead to next week when Fed, the European Central Bank and the BOJ will be meeting to decide on their policy and debate the rate outlook.

"While we anticipate that July will bring the Fed's last rate increase of this cycle, we do not think the Fed is comfortable signalling that shift just yet. Rather, policymakers appear more comfortable maintaining a hawkish stance for now," said analysts at TD Securities.

Elsewhere, oil prices were higher. Brent crude futures were up 0.3 per cent at $79.88 per barrel and U.S. West Texas Intermediate crude futures rose 0.4 per cent to $75.96.

Gold prices were 0.2 per cent higher at $1,972,99 per ounce.