Today's markets: Rate woes hit tech stocks

You can sense the angst among investors today with US rate woes hitting tech stocks the hardest at the moment. The tech-heavy Nasdaq fell 0.4 per cent, with Nvidia taking a hit, but the broader S&P 500 and Dow Jones indices managed to eke out a small rise, in a reverse of what we’ve seen for the past few months. Elsewhere, things seem calmer on the UK macro front, allowing the FTSE 100 to rise 0.1 per cent this morning, with shares in Paris up 1.1 per cent and Frankfurt also having a good session, up 0.7 per cent.

There’s a lot of corporate news around this morning too, helping fundamentals take charge for a change, with housebuilders helping the FTSE, overcoming some weaker numbers for retailers and BP. More on that here.

But generally, it’s all about the macro. The US and UK both report inflation numbers tomorrow, with most eyes on the US given what we’ve seen in the past week. Rate cut expectations have been pushed back so far that it’s hard to see what tomorrow’s US print could do. If it comes in at expectation, then maybe traders will be more sanguine and move back towards betting one 1-2 cuts this year, and probably from July. At the moment money is weighing on one cut, and maybe not even until September. Yields in the US are still rising, however, with the 10-year hitting 4.8 per cent, bringing it closer to the UK despite the US trending lower recently. The UK 10-year is 4.86 per cent with an auction coming up later today, which could give the government another headache.

What happens if we hit 5 per cent in either situation? Well, the UK has done that recently and the stock market doesn’t really respond to the macro, so it might be okay from an investor perspective. But the US is a different matter, with a 5 per cent 10-year yield we could see a huge tech sell-off, which will bring everything else with it given the concentration. If CPI overshoots expectation, and bear in mind the soft data so far has all been ahead of what economists predicted, then we could see quite a lot of market chaos tomorrow.

By Taha Lokhandwala