Tech tremors spread to financials to spoil global rally
LONDON (Reuters) – Tremors in technology stocks spread to Europe and were set to dent US trading on Wednesday, with weaker metals prices and flagging financials also tripping up a rally that had taken world equities to record highs.
Investors concerned about high valuations took the top off the tech sector, where stocks such as Facebook, Alphabet , Tencent and Alibaba have reached prices some describe as “eye-watering.”
Europe’s main index of stocks tumbled 0.7%, dragged lower by chipmakers which have been a crucial driver of growth in the sector and seen stellar price gains this year.
US stocks were set to open lower, with S&P and Dow Jones futures falling 0.1 to 0.2% while futures of the tech-heavy Nasdaq were down 0.5%.
Another negative for the tech sector was a detail of the US tax cut bill being debated in Congress that would limit the scope of tax credits that are key for research and development.
But bank stocks were the biggest drag on Europe’s STOXX 600 on Wednesday as they also slipped back after gaining strongly in the last week on the tax cut plan, as analysts raised concerns that European lenders will benefit less than US peers.
MSCI’s world equity index, which tracks shares in 47 countries, slipped 0.4%, on track for its worst fall in three weeks.
US market volatility rose again in early trading, its eighth day of gains in the last 10 as investors grew more jittery about stock markets driven to pricey levels by economic optimism.
“We really don’t see great bargains in any market right now with the US trading at 18.2x price to earnings and 14% above its average, and Europe at 15.1x, 10% ahead of the average,” said Jefferies analysts in a note.
European markets mirrored Asian trading, where MSCI’s Asia-Pacific index outside Japan dropped 1.5% to a two-month low on weaker metals prices.
Copper prices bounced slightly, up 0.6% from a twomonth low, but European basic resources stocks fell 1% as metals weakness fed through to miners.
In euro zone debt markets, German 10-year government bond yields held close to threemonth lows on Wednesday as risk-off sentiment drove investors into safer assets.
The two-year US Treasury yield fell slightly but still hovered near the nine-year high it had been driven to by the Fed’s monetary tightening plans and hopes for tax reform.
The 10-year Treasury yield also declined, but the yield curve flattened further, near its lowest in a decade. The flattening yield curve has obsessed investors concerned it may be a sign of imminent market stress.
“At the moment it is a market signal to watch and interpret; should the Fed start moving aggressively, however, it will become key to assessing the market’s longer-term economic view,” said Edward Park, investment director at Brooks Macdonald.