Nasdaq futures saw another sell-off on Monday, hinting at further declines for once-high-flying tech stocks as bond yields soared after the Senate passed Joe Biden’s $ 1.9 billion stimulus bill.
Traders pushed Nasdaq 100 futures down 1.6 percent through late morning European trading, suggesting that the tech-focused index could decline further after falling about 8 percent in the past three weeks.
Big tech names have fallen in recent sessions, with electric carmaker Tesla down about a third from the peak it hit in February and Cathie Wood’s high-profile Ark Innovation ETF also slumped in a bear market.
Market volatility has arisen because rising expectations for economic growth and inflation have led to a strong sell-off of US government debt. The sale continued on Monday, with the yield on the benchmark 10-year Treasury surging 0.04 percentage points to above 1.6 percent. The yield is close to the highest level in a year after the start of 2021, almost 0.9 percent.
Higher borrowing costs are typically considered bearish for expensive parts of the stock market, as they decrease the value of future cash flows. This has had a particularly sharp effect on the biggest winners since last March’s low as many are now trading at higher levels compared to their earnings and revenue expectations.
Monday’s bond market decline comes after the Senate passed Joe Biden’s massive stimulus package last weekend, which includes payments of $ 1,400 to many Americans. According to Goldman Sachs, the Senate’s measures accounted for just over 8 percent of US economic output.
“If the country comes through the House relatively unscathed, you might see another round of US growth upgrades and probably more concerns about interest rates and inflation. The battle royale will continue, ”said Jim Reid, research strategist at Deutsche Bank.
In Europe, the regional Stoxx 600 index was up 0.8 percent, the German Xetra Dax up 1.3 percent, while the UK’s FTSE 100 remained flat. Markets in China plummeted, pushing the main marker of mainland-traded stocks into “correction territory”.
The yield on the German 10-year Bund increased slightly by 0.01 percentage point to minus 0.29 percent, while the yield on the 10-year British bond remained unchanged at 0.76 percent.
This week, the European Central Bank will hold its regular monetary policy meeting and discuss whether the “recent rise in bond yields is commensurate with the improving global economic outlook or an unexpected tightening in financial conditions,” said Reid, adding that he expected the central bank to emphasize its commitment to maintaining favorable financing conditions.
Data released later on Monday on the central bank’s bond buying program will give traders an idea of what action the ECB could take to curb the rise in interest rates in the eurozone.
Marco Valli, head of macro research at UniCredit, said demonstrating at least a small increase in bond buying would be a major ‘credibility issue’ as several senior policymakers had indicated in recent days that the central bank should resist a sharp rate hike across the block.
Elsewhere, the price of commodities continued to rise after a major Saudi Arabian oil site was attacked over the weekend. The US West Texas Intermediate rose 1.63 percent to $ 67.17 a barrel, but later stabilized at $ 66.25. International benchmark Brent traded above $ 70 for the first time since the uproar in the market after the outbreak of the pandemic, but later cut its gains to $ 69.49.