World stocks try to find their feet after tech-stocks’ battering

London — World stocks attempted to steady on Wednesday following a bruising Wall Street session that wiped $1-trillion off the value of leading US tech shares, while oil prices staged a modest rebound after slumping to one-year lows.

US shares were set to open sharply firmer, futures indicated, after two days of losses that wiped out the S&P 500’s gains for the year and left the tech-heavy Nasdaq index teetering on the brink of falling into the red.

Losses have been concentrated in the technology sector, as investors lightened holdings of FAANG shares — Facebook, Apple, Amazon, Netflix and Google — the group that had propelled the Wall Street’s decade-long bull market.

The falls saw the Nasdaq index touch seven-month lows and energy shares, too, had dropped in line with a 6% oil price slump. That fed through to Asia on Wednesday, taking MSCI’s index of Asia-Pacific shares, excluding Japan, almost 0.5% lower, but it clawed back some of those falls to trade flat by 9am GMT. MSCI’s all-country benchmark was flat too, attempting to snap two days of falls.

That, alongside a 1.5% bounce in Brent crude futures and some optimism over Italy’s budget stance, helped European equities open 0.4% higher, with a tech index up 0.5%.

David Vickers, senior portfolio manager at Russell Investments, noted, however, that gloom has tended to deepen as the Wall Street session progresses and more company earnings emerge.

“High-flying momentum stocks have come off in a fairly spectacular fashion. At one point, Apple and Amazon accounted for 40% of US equity gains and people were just recycling money into the winners,” Vickers said. “That’s come off the boil and set the cat among the pigeons … We’ve seen a lot of reflexivity; when selling begets selling, the market starts to turn over, people take profits, it leads to another leg down, and so on.”

Markets also appear to be preparing for a loss of momentum in global economic growth as China takes a hit from Washington’s trade tariffs and the US comes off the sugar-high of President Donald Trump’s tax cuts.

Vickers said that after 20%-plus earnings growth at US  companies, some investors are disappointed with signs this would slow to single digits as the stimulus effect wears off. “If you have a market like the S&P500, which is two standard deviations expensive, it becomes difficult if you don’t think you will get the same kinds of earnings growth in future.” 

The growth concerns have also been revived by comments from US Federal Reserve officials who suggested economic outlook concerns could slow the pace of its monetary policy tightening cycle, or even end it.

The comments have knocked US 10-year bond yields to near two-month lows of about 3.03%, after trading above 3.25% at the start of November. But the recovery in global sentiment allowed yields to rise around three basis points to 3.08% while the dollar’s index, which had jumped 0.7% on Tuesday, slipped 0.2%.

Italy’s draft budget

The euro rose after a 0.75% drop on Tuesday, buoyed by reports that Italy may be open to reviewing its draft budget for 2019, possibly easing a confrontation with the EU. The League party, part of the ruling coalition, later denied the report.

Italians bond yields fell up to 16 basis points initially, putting 10-year yields on track for their biggest daily drop in almost a month, but the market gave up some of its gains after the denials. Italian bank shares, too, eased off session highs but were still up 2% on the day after sinking to two-year lows on Tuesday.

Focus is now on the European Commission, which should take the first step on Wednesday towards disciplining Italy over its draft fiscal plan. “This procedure will take several months, but stands to keep [government bonds] and the Italian banking sector under pressure; favour euro under-performance in Europe; and probably further choppy euro-dollar trading in a $1.1350 to $1.1450 range,” ING Bank analysts told clients.

Oil’s bounce helped commodity currencies, such as the Australian dollar and Norwegian krone, which recovered about 0.4% again the dollar after heavy recent slides.

Reuters