Stock markets fell in Europe and Asia following a fall on Wall Street, as tech stocks suffered another blow over fears that rising inflation would prompt central banks to tighten monetary policy.
The European Stoxx 600 index fell 1.7 percent in morning trades, as markets in Germany and France fell by a similar margin. London’s FTSE 100 fell 2%. The falls came after the US-tech Nasdaq Composite fell 2.6% on Monday.
Tech stocks suffered the heaviest selling in Europe on Tuesday, with the Stoxx 600 tech index falling 2%. All other major industrial groups were also lower that day, according to data from Refinitiv.
The measures preceded US inflation data on Wednesday which is expected to show consumer prices up 3.6% in April from the same period last year and 0.2%. from March 2021. A “core” index that excludes volatile foods and energy prices are expected to rise 0.3% from the previous month. Citigroup economists expect higher prices for used cars, transportation and hotels to push up the benchmark.
Data on Tuesday showed that Chinese factory gate prices, an indicator of what domestic consumers and Western importers will pay for the goods, hit a three-year high of 6.8% last month, on a year.
Hong Kong’s Hang Seng closed more than 2 percent lower and Japan’s Nikkei 225 ended the Tokyo trading session down more than 3 percent.
Jay Powell, Chairman of the US Federal Reserve, has promised to continue the $ 120 billion in monthly central bank bond purchases that boosted markets during the pandemic until the path to recovery becomes clearer.
Investors, however, are anticipating when the Fed may be forced to change stance, a forecast that became difficult after the central bank revised its inflation regime last year to accept short-term spurts of strong price growth.
“We expect this year’s rapid economic recovery, and the resulting resumption of inflationary pressures, will prompt investors to increasingly consider a tighter real stance of monetary policy later,” commented analysts. from Capital Economics in a research note.
Inflation does not only increase the chances of central banks withdrawing their support from the markets. It also erodes the yields of fixed income securities like government bonds, leading to lower prices and higher yields. The yield on US Treasury bonds informs investors how investors assess future cash flows from stocks. Analysts say this is particularly important for tech stocks, which rose rapidly during the pandemic and whose valuations were flattered by low interest rates.
The shares of many frequent Wall Street travelers have started to pull back sharply. Cathie Wood’s Ark fund, which owns shares in companies such as Tesla, is down about a third from its February high, as other foamy parts of the market, such as unprofitable companies and tech groups exposed to fluctuations in the price of bitcoin, stumbled.
The benchmark 10-year US Treasury yield was flat at 1.608 percent on Tuesday but fell about 0.9 percent at the start of the year.
Not all analysts are bearish about the future direction of stocks, with some arguing that higher inflation in the US will prove to be transient as consumer demand stabilizes and chain bottlenecks. supply related to sector closures last year will be resolved.
“As investors worry about inflation lately, we expect any short-term spike in inflation to be temporary and unaffected by persistent inflation,” said Andrea Bevis, senior vice president of UBS Private Wealth Management.
She added, however, that “investors should diversify beyond large-cap tech companies and look into cyclical and value-driven sectors,” such as power producers and industrial groups. , “Which are expected to continue to benefit from higher yields and a widening economic recovery.”
