Tech rotation deepens, BTC remains underwater, BoE and ECB decisions eyed

Another day, another bout of risk-off, with the tech sector remaining front and centre for markets. The Nasdaq 100 fell 447 points (1.8%) to 24,891, along with the S&P 500 dropping 35 points (0.5%) to 6,882 – despite market breadth showing more gainers than losers on the day – while the Dow caught a bid and rallied 260 points (0.5%) to 49,501. At the GICS sector level, tech bore the brunt of the losses, down around 1.9%, with underperformance also in consumer discretionary and communication services.

Tech selling drives rotation to value

The driver behind the recent downside is underwhelming earnings from Alphabet (GOOG), Qualcomm (QCOM), and Arm Holdings (ARM).

What caught the market's attention was guidance from Alphabet on capital expenditures, showing the company plans to spend as much as US$185 billion this year, considerably higher than the Street's expectation of approximately US$120 billion.

This has prompted another rotation out of tech as investors question potential ROI, triggering a move into value, which is why the Dow ended the session primarily in the green.

Crypto and precious metals extend downside

Elsewhere, the Crypto space continued to be hit yesterday; BTC closed down nearly 5.0% versus the USD, touching lows just north of US$72,000 – levels not seen since November 2024. Of note, BTC has shed more than 40% since BTC/USD clocked an all-time peak of around US$126,000.

With the April 2025 low at US$74,387 absorbed and sell-stops tripped, further underperformance could be on the table for BTC. I am not going to pretend to know all the ins and outs of the Crypto domain, but the downward bias seems to be stemming from markets viewing BTC as more of a macro asset rather than a narrative driven one.

Precious metals show Silver down 14.0% as of writing, with Gold also shedding 2.5% after failing to find acceptance above US$5,000. The USD bid is largely driving the move.

JPY on the back foot ahead of elections

Also noteworthy is the JPY continuing to soften against the USD ahead of Japan’s general election on Sunday, which Prime Minister Sanae Takaichi is tipped to win decisively. A victory would help cement her mandate for expansionary fiscal policy, naturally raising concerns about the country’s fiscal credibility – public debt-to-GDP is more than 200%.

This has seen JGBs rise and the JPY continue to soften, recently pushing to within touching distance of ¥157.00 versus the USD. Although a weak JPY benefits exporters, it makes imports more expensive, worsening Japan's cost-of-living crisis. Verbal signalling from Japanese officials has done little to support the weak JPY, with markets also remaining uncertain about how effective any future intervention will be, given that the Fed is nearing its neutral rate.

BoE and ECB call for attention

Updates from the BoE and ECB today are expected at 12:00 pm and 1:15 pm GMT, respectively.

As I noted in the week-ahead briefing, the BoE is in a tricky spot, balancing elevated inflationary pressures and a loosening jobs market, with the central bank expected to remain on hold at 3.75%. While comments from Governor Andrew Bailey expressed his openness to easing policy if there is evidence that inflation is moving towards their 2.0% target, we saw little evidence of that in the December report.

With the MPC remaining divided, and Bailey now often seen as the swing voter, I expect the Governor to opt for a pause today.  While softer jobs data should eventually justify rate cuts, money markets are pricing around -36 bps of easing by year-end, with the first rate cut expected in June (-24 bps) or July (-31 bps), with a possibility of an April meeting cut (-18 bps). As such, the focus will be on the vote split and guidance to help determine whether rates will be cut sooner than the market projects.

Meanwhile, for the ECB, I am not expecting much from the Governing Council today, with President Lagarde likely to maintain that policy is in a ‘good place’. Inflation is around the ECB’s target, unemployment is at historic lows, and GDP growth is offering a moderately resilient picture, indicating that there is no reason for the ECB to move. Markets are also pricing in that the central bank remains on hold for the year.