Global shares slip, dollar soars versus yen on Bank of Japan policy expectations

NEW YORK, July 22 (Reuters): Global share markets edged lower on Friday as most US megacap stocks slipped, while the dollar soared against the yen after Reuters reported the Bank of Japan is leaning toward keeping its dovish monetary policy next week.
Gold prices fell as the dollar rebounded to its highest in more than a week as investors prepare for next week's big central bank policy meetings, including the BOJ, the Federal Reserve and the European Central Bank.
The yen weakened 1.16 per cent to 141.74 per dollar, while the dollar index, a measure of the greenback against major trading currencies, rose 0.29 per cent.
The Dow eked out a gain to extend its winning streak to 10 sessions. But the Nasdaq fell and the S&P 500 barely rose, signs that the megacap tech and growth stocks that have driven the two indices respective 34 per cent and 18 per cent advances this year have stalled.
Garrett Melson, portfolio strategist at Natixis Investment Managers in Boston, said "you've seen a broadening out in the rally coming off narrow leadership," a reference to megacaps such as Microsoft Corp and Apple Inc.
More investors are now embracing the probability of a soft landing, with many companies well financed at lower interest rates so that higher rates - the Fed's terminal rate is expected to rise to 5.25 per cent-5.5 per cent next week - will not cause a credit crunch as in the past.
"This is an income-driven cycle as opposed to a credit cycle," said Melson. "Real incomes are growing as inflation cools and corporate and household balance sheets are very, very robust and have excess cash," he said.
"Bottom line, the odds for a soft landing are very strong."
The Dow rose 0.01 per cent, while the S&P 500 gained 0.03 per cent and the Nasdaq Composite slid 0.22 per cent.
"The mood across equity markets is unequivocally that the worst is behind us," said Dec Mullarkey, managing director of investment strategy and asset allocation at SLC Management in Boston, though the Fed's credit tightening is creating cracks.
"None of them are happening with massive severity, but the longer we go on with higher rates, more and more that's going to come through," he said. "But again, big picture pretty good, but there are cracks."
A special rebalancing of the Nasdaq 100 that takes effect before Monday's opening may cause "quirky price action" in tech mega-caps, said Patrick Spencer, vice chair of equities at Baird in London.
The overhaul of the index to reduce its heavy weightings of the super megacaps, such as Microsoft and Apple, may exacerbate moves in these stocks during the ongoing earnings season, he said.
MSCI's US-centric gauge of stocks across the globe closed down 0.2 per cent, and the NYSE FANG+TM index, which includes the megacap stocks, slid 0.97 per cent.
In Europe, the pan-European STOXX 600 index rose 0.32 per cent to end the week higher as declining tech stocks were offset by gains in energy companies that tracked oil prices higher.
BOJ policymakers prefer to scrutinize more data to ensure wages and inflation keep rising before changing yield control policy, five sources familiar with the matter said. The report added there was no consensus within the central bank and the decision could still be a close call.