Technology giants weigh on US futures; Treasuries gain

US equity futures fall as megacap technology shares slumped in pre-market trading, marring a three-day rally on Wall Street and raising new doubts over whether this year’s $5.5 trillion selloff is nearing a bottom.

Contracts on the Nasdaq 100 fell more than 1% after disappointing quarterly updates from Microsoft Corp., Google parent Alphabet Inc. and Texas Instruments Inc. S&P 500 futures were down about 0.5%. Treasuries extended gains, with the 10-year yield falling to around 4.04%, and a gauge of the dollar declined for a second day to its lowest level in three weeks.

Stocks have been buoyed in recent days by mostly solid earnings and speculation the Federal Reserve may curb the pace of rate increases amid evidence its aggressive tightening is starting to weigh on the economy.  About a quarter of S&P 500 companies have reported third-quarter results, with more than two-thirds beating analysts’ estimates despite the big-tech setback. But concern is mounting that slowing output will dent corporate profits in coming months.

“Yes we’re seeing earnings beats at the moment,” Mike Ingram, a senior market strategist at ActivTrades, said on Bloomberg TV. “But where I do start to have a bit of a problem at this juncture is that some earnings expectations going into next year are looking still a bit punchy.”

The Stoxx Europe 600 index fluctuated amid a raft of mostly positive earnings from heavyweights including Barclays Plc, Deutsche Bank AG and Mercedes-Benz Group AG. The technology sector, however, weighed on the benchmark as it dropped more than 1%, while brewer Heineken NV plunged after missing analysts’ estimates for volume growth.

Equities advanced in China, Japan and South Korea. Positive signs for Asia included China’s central bank and foreign-exchange regulator indicating they would maintain the healthy development of stock and bond markets, while reiterating that the yuan would be “basically stable.”

A near 5% rebound in a gauge of US-listed Chinese stocks helped claw back some of the record loss suffered in the wake of President Xi Jinping breaking with China’s collective leadership. Hong Kong’s tech gauge made strong gains for a second day but was still short of recouping near 10% slide. The offshore yuan gained as much as 1.1% against the dollar.

The yen weakened to around 148 per dollar ahead of the Bank of Japan’s policy decision Friday, when monetary settings are expected to be kept unchanged. Meanwhile, the central bank boosted purchases of longer-dated government bonds as rising yields threatened to loosen its grip on the yield curve.

While the recent US data haven’t changed expectations that the Fed will hike interest rates by 75 basis points next month, they’re fuelling speculation that an end to aggressive tightening may come next year. Analysts are also projecting challenges for now in Europe, with a jumbo hike of 75 basis points expected from the European Central Bank on Thursday. That’s even as many economists now reckon a recession has begun in the euro region.

“Sentiment’s still incredibly fragile. We do expect to see further market volatility,” Catherine Yeung, investment director at Fidelity International, said on Bloomberg Radio. “All eyes are still on the rate cycle globally speaking as well as where inflation does go. I think going into the end of the year, again, it’s going to be volatile.”

Elsewhere, oil was steady as an industry report showed a rise in US crude stockpiles and investors fretted about weaker demand amid slowing growth. Gold edged higher in Asia as lower Treasury yields supported the precious metal. Bitcoin climbed for a second day, heading towards $21,000.

—Bloomberg