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- Growing expectations of Fed rate hikes keep the yen near 40-year lows
- Tech stocks, including Nvidia and Tesla; South Korea's Kospi plunges 10%
- Brent and gold both fall (Article completely rewritten, headlines updated, and analyst comments added)
by Amanda Cooper and Chibuike Oguh
Global stock markets fell on Tuesday, dragged down by a wave of massive selling in technology and semiconductor stocks, as profit-taking intensified and investors braced for a more aggressive Federal Reserve action against inflation.
On Wall Street, the tech-heavy Nasdaq led the decline, with semiconductor stocks and some mega-cap names under pressure.
Nvidia NVDA.O fell 3% and Tesla TSLA.O dropped 5%, while SpaceX SPCX reversed its initial decline to close up 1.6%. Semiconductor stocks .SOX lost 7%.
The Dow Jones Industrial Average .DJI gained 0.06%, the S&P 500 .SPX fell 1%, and the Nasdaq Composite .IXIC lost 1.6%.
“If you look at the technical indicators, the SOX was at its highest overbought level in three years; so there is clearly an overvaluation of expectations, market positions, and valuations,” said Amanda Agati, chief investment officer at PNC Asset Management Group.
European stocks also declined, with the STOXX 600 .STOXX losing 0.51%, weighed down by declines in semiconductor and chip equipment makers. This weakness followed losses in Asia, where Seoul's KOSPI .KS11 plunged 10%, its biggest daily drop since March. The MSCI world stock index .MIWD00000PUS fell 1.26%.
“Questions are being raised again about AI infrastructure spending, especially as some large companies plan to sell shares to fund their expansion,” said David Morrison, senior market analyst at Trade Nation.
“Only time will tell whether this is a new opportunity to ‘buy on the dip’, or a harbinger of darker days ahead.”
OIL STAYS BELOW $80 A BARREL
Oil prices remained subdued, with Brent holding below $80 a barrel as tanker traffic in the Strait of Hormuz intensified and physical market prices moved closer to pre-conflict levels.
The United States agreed to suspend sanctions on Iran for 60 days starting Monday, following the first round of negotiations under a nascent peace deal reached last week to end more than three months of war.
While lower oil prices would normally support equities, investors' attention turned to inflation prospects and central bank policy. Markets now expect the Fed to take a tougher stance on inflation under Kevin Warsh's leadership.
US Treasury yields have surged in recent days, with two-year yields — highly sensitive to rate expectations — hitting their highest level in 16 months. On Tuesday, two- and ten-year yields both edged lower during the day, settling at 4.20% and 4.48%, respectively.
Money markets indicate that investors have almost fully priced in a rate hike by September. Against this backdrop, the dollar hit its highest level in a year against a basket of currencies.
“For me, the data does not suggest that rates need to be raised. Rather, it suggests pausing for a while to see if the inflation data related to the Middle East conflict eases following the negotiations and agreement,” said Agati.
YEN AT 40-YEAR LOW
Money markets now almost fully anticipate a rate hike by September, helping push the dollar index =USD to its highest level in a year against a basket of currencies. The index closed up 0.32% at 101.33.
The dollar's strength weighed heavily on the Japanese yen JPY=, which hovered near its lowest level in 40 years at 161.53 yen per dollar. The euro EUR slipped below $1.14 to hit a one-year low, as investors scaled back expectations for further tightening by the European Central Bank.
Japanese Finance Minister Satsuki Katayama said she discussed global financial markets with US Treasury Secretary Scott Bessent on Monday, a move that analysts say could signal a growing risk of intervention to support the yen.
In the UK, the British pound GBP= fell 0.35% to $1.3201 on the 10th anniversary of the Brexit vote. Sterling remained under pressure after Prime Minister Keir Starmer announced his resignation, paving the way for what is expected to be a smooth political transition to Andy Burnham.
Gold XAU= also fell, losing 1.5% to $4,127 an ounce, as rate hike expectations reduced the appeal of non-yielding assets.
In cryptocurrencies, bitcoin BTC= dropped 2.95% to $62,475.67, while Ethereum ETH= fell 4.12% to $1,661.63.
