Tech sell-off and inflation fears pressure global markets

Tokyo’s Nikkei closed 3.1% down on Tuesday while Hong Kong’s Hang Seng index dropped 2%

Asian markets closer lower after a tech sell-off pressured US stocks on Monday. EPA

Asian markets came under pressure and European markets traded lower on Tuesday after a technology sell-off dragged down US markets on Monday as fears about rising inflation grew.

Tokyo’s Nikkei closed 3.1 per cent lower on Tuesday while Hong Kong’s Hang Seng index dropped 2 per cent, extending its decline from its February 17 high this year, weighed down by the sell-off in the US markets. However, markets in China registered gains with the Shanghai composite index ending the day up 0.4 per cent and the Shenzhen composite rising 0.36 per cent.

In Europe, Germany’s Dax 30 fell 2.39 per cent while the UK’s FTSE 100 and the Euro Stoxx 50 were both down 2.21 per cent at 3.20pm UAE time. The CAC 40 index in Paris also dropped 2 per cent.

The fall in values across Asia and Europe mirrored those of US markets, with the tech-heavy Nasdaq closing 2.55 per cent lower on Monday and the S&P500 falling more than 1 per cent as shares in Facebook, Alphabet, Apple and Amazon slumped. The Dow Jones closed 0.1 per cent lower on Monday.

The sell-off comes amid fears that pandemic-driven stimulus measures could drive up inflation and force central banks to raise interest rates.

“Inflation is what keeps investors up at night. Rising worries of seeing an overshoot in US inflation sent tech stocks lower at the beginning of this week,” Ipek Ozkardeskaya, senior analyst at Swissquote, said.

“And the latest Chinese figures didn’t help soothing investors’ nerves.”

On Tuesday, China said the producer price index, a gauge of industrial profitability, rose 6.8 per cent annually in April. Strong domestic consumption, soaring exports and rising factory gate prices are all indicators that the world's second largest economy is seeing growth pick up during the second quarter, according to a note by the Bank of Singapore. The lender expects China's gross domestic product to expand sharply by 8.7 per cent in 2021.

Although producer prices have risen, analysts believe it is unlikely these costs will be passed onto consumers. April’s consumer price index only rose by 0.9 per cent.

“The rising factory-gate prices haven’t translated into higher end-product inflation in China and this week’s data could confirm the same subdued reaction in US consumer prices, as well. That suspense on the consumer price end is killing investors,” Ms Ozkardeskaya said .

However, raw material costs, including steel and copper – essential in manufacturing supply chains – have soared over the past month, testing policy makers’ views that inflation is temporary and is a result of resurging economic activity.

Investors will be closely watching how central banks and other officials respond over the next few days.

“Traders will be gauging the stance of several important Fed officials who are slated to speak later today. The focus will be on what these officials make out of the recent US [employment] data and their views of the US's current monetary policy and economic recovery,” Naeem Aslam, chief market analyst at Avatrade, said.