Equity markets in Europe and Asia fell after a fall on Wall Street, with technology stocks taking another blow over fears that rising inflation will prompt central banks to tighten monetary policy.
The European Stoxx 600 index fell 2 percent, while the markets in Germany and France fell by a similar margin. The FTSE 100 in London fell 2.3 percent. Futures trading indicated that an index of the 100 largest stocks on the tech-heavy Nasdaq Composite could fall more than 1 percent at the opening bubble in New York after a drop on Monday.
Technology stocks sold the hardest in Europe on Tuesday, with the Stoxx 600 tech index falling 2.3 percent. According to data from Refinitiv, every other major industry group was also down on the day.
Investor concerns that a broad recovery in global economies and rising costs for many commodities will cause a sharp rise in prices for consumers and businesses have flared up in recent weeks.
Fears are growing that the U.S. Federal Reserve could be forced to cut its $ 120 billion in monthly asset purchases that have boosted stock markets through the pandemic faster than intended, pushing the most valued stocks, such as those of major technology companies, remain. most vulnerable to a correction.
“Inflation is causing a lot of fear among investors because of the possibility that central banks are not ready,” said Aneeka Gupta, research director at WisdomTree, who added that she expected a lasting price increase rather than a “transitory” increase.
The U.S. five-year break-even rate, a key measure of market expectations for price growth, hit 2.733 percent Tuesday, which would be the highest level on a closing basis since 2006, Bloomberg data shows.
Meanwhile, mentions of “inflation” among executives in Wall Street corporate earnings teleconferences have soared to nearly a record high from a decade ago, with many companies planning to pass on higher costs by raising prices, Bank of America said.
The specter of stronger cost pressures was reinforced on Tuesday by data showing Chinese factory prices, an indicator of what domestic consumers and Western importers will pay for goods, rose to a three-year high of 6.8 percent last month, year on year. .
The higher price growth is fueled by a global shortage of chips, a sharp increase in the prices of raw materials, from iron ore to lumber, and a rapid recovery in the major global economies.
Fed Chairman Jay Powell and other US central bank policymakers have said they are willing to tolerate short bursts of higher prices to support the economic recovery.
The benchmark yield on 10-year US Treasuries changed little to 1.615 percent on Tuesday. However, it is up from about 0.9 percent at the start of the year as traders are betting on a longer term inflationary trend that would erode returns on such fixed income securities.
Higher returns on Treasury bills also erode the value of companies’ future cash flows, something that is particularly penalizing stocks in tech and other growth companies whose profits will not peak in the coming decades.
Strong moves from such stocks have already caused the value of Cathie Wood’s flagship Ark innovation fund to drop by about a third from its February high. Ark holdings such as Tesla, which led the way in last year’s major stock rally, have pulled back sharply.
Not all analysts are bearish about the future direction of stocks.
“While investors have been concerned about inflation recently, we expect a short-term inflation spike to be temporary in nature [are] is not concerned about continued inflation, ”said Andrea Bevis, senior vice president at UBS Private Wealth Management.
In Asia, Hong Kong’s Hang Seng closed more than 2 percent lower and Japan’s Nikkei 225 ended the Tokyo trading session by more than 3 percent.
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