Global markets were trying to regain their footing after a sharp selloff in U.S. technology stocks wiped about $1 trillion from the value of leading names and dragged sentiment across Asia and Europe.
Wall Street futures pointed to a stronger open in the United States after two straight sessions of losses that erased the S&P 500’s gains for the year and pushed the Nasdaq close to slipping into negative territory for 2018. The pressure was concentrated in the technology sector, where investors cut exposure to FAANG shares — Facebook, Apple, Amazon, Netflix and Google — the group that had powered much of the long U.S. bull run.
The Nasdaq had fallen to seven-month lows, while energy shares also weakened after oil prices dropped 6 percent. That weakness spread into Asian trading on Wednesday, where MSCI’s ex-Japan Asia-Pacific index briefly fell almost 0.5 percent before recovering to trade flat by 0900 GMT. MSCI’s all-country benchmark was also unchanged as markets tried to end a two-day slide.
European stocks opened firmer, helped by a 1.5 percent bounce in Brent crude futures and some relief over Italy’s budget dispute. The region’s main equities index rose 0.4 percent, while the technology sector gained about 0.5 percent.
David Vickers, senior portfolio manager at Russell Investments, said the mood often worsened as the U.S. session went on and more earnings reports came in. He said: “High-flying momentum stocks have come off in a fairly spectacular fashion. At one point Apple and Amazon accounted for 40 percent of U.S. equity gains and people were just recycling money into the winners,” Vickers said.
He added: “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.”
Investors were also weighing signs that global growth could slow as China absorbed the impact of Washington’s trade tariffs and the United States moved beyond the boost from President Donald Trump’s tax cuts. Vickers said U.S. corporate earnings growth had been running above 20 percent, but some investors were disappointed by signs that it could slow to single digits as stimulus faded.
“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,” he added.
Comments from U.S. Federal Reserve officials also added to the caution, with policymakers suggesting that worries about the outlook could slow the pace of tightening or even bring the cycle to an end. That helped push U.S. 10-year Treasury yields near two-month lows around 3.03 percent, after they had traded above 3.25 percent at the start of November.
As sentiment improved, yields later rose about three basis points to 3.08 percent, while the dollar index slipped 0.2 percent after gaining 0.7 percent on Tuesday.
The euro recovered from a 0.75 percent fall the previous day after reports said Italy might be open to revising its 2019 draft budget, which could ease tensions with the European Union. The League party, which is part of the ruling coalition, later denied that report.
Italian bond yields initially fell by as much as 16 basis points, putting 10-year debt on course for its biggest daily drop in nearly a month, but some of those gains faded after the denial. Italian bank shares also eased from session highs, though they were still up 2 percent after hitting two-year lows on Tuesday.
The European Commission was expected to take the first formal step on Wednesday toward disciplining Italy over its draft fiscal plan. ING Bank analysts said the process could last several months and keep government bonds and Italian banks under pressure, while also weighing on the euro.
Oil’s rebound helped commodity-linked currencies, including the Australian dollar and the Norwegian crown, both of which recovered about 0.4 percent against the dollar after recent heavy losses.
Reporting by Sujata Rao; additional reporting by Shinichi Saoshiro in Tokyo; Editing by David Stamp.
