(Bloomberg) — US futures and European shares failed to build Tuesday’s gains as a rally in megacap stocks that had propelled the S&P 500 to the edge of a bull market continued to fizzle.
Apple Inc. looked set to extend Tuesday’s decline, falling in premarket trade along with Nvidia Corp. and Microsoft Corp., in a signal that more air is coming out of the rally in tech shares.
The potential that central banks will keep rates higher for longer, disappointing hopes they will pivot to rate cuts later this year, is weighing on tech. Because such companies derive their values from future cash flows, higher rates would brake the momentum in megacap stocks.
“One of the things I’m a little nervous about is that the rates market got a little too carried away about the central banks being able to quickly pre-emptively cut rates,” said Karen Ward, chief market strategist for EMEA at JPMorgan Asset Management, in an interview with Bloomberg TV. With rates markets pricing out some expected cuts, “that to me puts some of those growth, those megacap tech valuations, a little at risk,” she said.
Treasury Yields Nudging Higher Shows Fed in Pause-and-Hike Mode
European shares wavered, with sentiment damped by a bigger-than-expected drop in Chinese exports and an OECD warning that the global economy is set for a weak recovery, dogged by persistent inflation and restrictive central bank policies.
Hermes International was among the biggest drags on the benchmark, and was set to decline for the third straight session on Wednesday. Despite some hopes over potential stimulus, conviction on the China reopening trade has faltered, with sectors such as luxury goods among the hardest-hit.
“Weaker global trade is not a new story but it is surprising how quickly China’s reopening boost has faded,” said Craig Erlam, a senior market analyst at Oanda. “Pressure is set to intensify on the leadership to announce new stimulus measures in a bid to revitalize the economy again.”
China Stocks Too Cheap to Ignore for JPMorgan Asset, Invesco
The FTSE 100 fluctuated after UK lender Halifax said the nation’s house prices posted their first annual decline since 2012.
Danske Bank shares gained as much as 5.9%, after it raised its key target for profitability and pledged dividends as the lender seeks to leave behind a turbulent period defined by scandals. Inditex SA rose as much as 6.5%, its biggest jump in a year lifting the retail sector, after earnings from the Zara owner beat expectations.
In currency markets, Turkey’s lira slumped about 7% to a record low against the dollar amid increasing signs that policy makers may be scaling back interventions to support the currency. President Recep Tayyip Erdogan’s appointment of former Merrill Lynch strategist Mehmet Simsek as his new treasury and finance minister has sparked expectations of a return to more orthodox monetary policy and raised the prospect of reduced intervention in markets.
A gauge of greenback strength was little changed. Treasury yields were slightly higher after a Treasury bill auction announcement weighed on short-dated US bonds on Tuesday.
Elsewhere, the Securities and Exchange Commission widened its sweeping crackdown on crypto by accusing Coinbase Global Inc. of running an illegal exchange, a move that could make it harder for the industry to operate and for US citizens to trade. Bitcoin slipped.
In commodities, gold was edged lower. Oil fluctuated after giving up gains Tuesday off news of Saudi Arabia’s supply cut.
Key events this week:
- US trade, consumer credit, Wednesday
- Canada rate decision, Wednesday
- EIA crude oil inventory data, Wednesday
- Eurozone GDP, Thursday
- Rate decisions in India, Peru, Thursday
- Japan GDP, Thursday
- US wholesale inventories, initial jobless claims, Thursday
- China PPI, CPI, Friday
Some of the main moves in markets:
Stocks
- S&P 500 futures were little changed as of 6:33 a.m. New York time
- Nasdaq 100 futures were little changed
- Futures on the Dow Jones Industrial Average fell 0.1%
- The Stoxx Europe 600 was little changed
- The MSCI World index was little changed
- The MSCI Asia Pacific Index was little changed
- The MSCI Emerging Markets Index rose 0.7%
Currencies
- The Bloomberg Dollar Spot Index fell 0.2%
- The euro rose 0.1% to $1.0708
- The British pound rose 0.2% to $1.2452
- The Japanese yen rose 0.2% to 139.36 per dollar
- The offshore yuan was little changed at 7.1259 per dollar
Cryptocurrencies
- Bitcoin fell 1.4% to $26,567.58
- Ether fell 1.1% to $1,856.75
Bonds
- The yield on 10-year Treasuries advanced two basis points to 3.68%
- Germany’s 10-year yield was little changed at 2.37%
- Britain’s 10-year yield declined one basis point to 4.19%
Commodities
- West Texas Intermediate crude rose 1% to $72.44 a barrel
- Gold futures were little changed
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Joanna Ossinger.
©2023 Bloomberg L.P.
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