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US futures and global equities tumble as inflation fears return to haunt tech stocks

Updated: Jun 18, 2021

Inflation fears returned to haunt tech stocks.

  1. US futures slid on Tuesday after sharp falls on Monday, with tech stocks the worst-hit.

  2. Inflation fears returned to the fore ahead of key data, despite a weak jobs report on Friday.

  3. Higher inflation weighs on stocks whose full earnings potential lies some way in the future.

US futures dropped on Tuesday, after a sharp sell-off in technology stocks the previous day, as worries over rising inflation returned to shake investors’ faith in sky-high valuations.

Asian stocks dropped overnight and European equities fell in early trading. Oil prices slipped as traders weighed up an easing of disruptions in the US, while the dollar hovered at 5-month lows.

Futures for the tech-heavy Nasdaq 100 index dropped 1.22% on Tuesday, following a 2.63% plunge on Monday – its largest one day fall since mid-March. Fears over rising inflation have been hitting tech stocks in particular by denting the appeal of companies whose full earnings potential lies some way in the future.

S&P 500 futures were down 0.75% after the index fell 1.04% on Monday. Meanwhile, Dow Jones futures were off by 0.49% after the index slipped just 0.1% on Monday, having benefited from a rotation into stocks such as industrials and financials that stand to benefit when growth and inflation are higher.

Monday and Tuesday’s jitters marked a sharp change from the narrative that built up among traders and investors on Friday, when a much worse than expected US jobs report quelled fears of inflation and helped stocks.

“All the talk was of ebbing inflation fears after Friday’s mammoth nonfarm payrolls miss,” Jeffrey Halley, senior market analyst at trading platform Oanda, said. “Yet overnight, the inflation ghoul reappeared as US yields moved higher, and technology stocks were hammered.”

Analysts said concern about price pressures had reemerged ahead of Wednesday’s consumer price index inflation data. It is expected to show a sharp rise in year-on-year inflation to 3.6% from 2.6%, although much of the rise will be due to the fact that prices were subdued a year earlier when COVID-19 hit the economy.

Lee Hardman, currency analyst at Japanese bank MUFG, said part of the reason the narrative had shifted so quickly was because of fears that Friday’s weak jobs report was a sign of labor shortages in the economy.

“It has already been suggested that the softer than expected payrolls for April could be due to labor supply constraints more than a lack of demand which would create a more inflationary outcome if it proves persistent.”

But Hardman suggested fears the Fed might reduce support for the economy sooner than expected were overblown. “The Fed have already signaled clearly that they are going to look through the temporary increase in inflation pressure, and are unlikely to alter their dovish policy stance,” he said.

US bond yields inched higher, with the yield on the key 10-year Treasury note rising 1.3 basis points to 1.615%. Yields move inversely to prices.

Asian stocks dropped overnight, following the tech rout on Wall Street. Japan’s Nikkei 225 tumbled 3.08%, while Hong Kong’s Hang Seng fell 2.22%.

European stocks traded sharply lower on Tuesday morning, with the continent-wide Stoxx 600 index down 1.94%.

Britain’s FTSE 100 index was 2.13% lower, held down in part by a strong pound, which hit its highest level since February following election victories for the ruling Conservative party. A stronger pound makes the overseas earnings of FTSE constituents worth less in relative terms.

The dollar index was roughly flat at 90.19 after a sharp fall in the wake of Friday’s weak jobs report. The greenback is now close to where it started the year, having reversed strong gains made in February and January. Investors think rebounds in other major economies mean it has further to fall.

Oil prices slipped after the Colonial Pipeline – a major US fuel line that had been hit by hackers – partially reopened. Brent crude fell 0.7% to $67.84 a barrel, while WTI crude dropped 0.74% to $64.44 a barrel.

“Oil, gasoline and heating oil fell as fears of a prolonged outage of the Colonial pipeline eased,” Neil Wilson, chief market analyst at trading platform, said. “The company said it is working in phases to have the pipe working again by the end of the week. Weaker risk sentiment in the Asian session also sent crude futures lower.”

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