European stocks lost ground on Tuesday, dragged lower by technology shares, while a correction to high valuations on Wall Street looked set to continue for another session.
The Europe Stoxx 600 index dropped by 0.9 per cent, led by tech constituents that fell by 2.3 per cent. The UK’s FTSE 100 index slipped by 0.4 per cent and France’s CAC dropped by 1 per cent.
Dutch chipmaker ASML was among the weakest performers in Europe, with its shares dropping by almost 3 per cent.
Trigger
Futures contracts linked to the tech-focused Nasdaq 100 index, whose constituents include Apple, Microsoft and Google, suggested that the benchmark would open about 1.6 per cent lower, bringing losses since the middle of last week to about 8 per cent. The broader S&P 500 was poised to weaken about 0.4 per cent.
On Monday US markets were closed for the Labor Day holiday.
There was no “obvious external trigger” for the broad retreat from tech stocks, said Patrik Lang, head of equity and strategy research at Julius Baer. But he noted that such companies have been trading at high multiples of their earnings during the coronavirus economic shutdown, as consumers spend more time on screens and home-workers shift to using videoconferencing applications.
“In our view, this is a healthy correction, as the divergence between funky technology names and the rest of the market has recently reached extreme levels,” he said.
Alexis Gray, investment strategist at Vanguard, agreed that share prices in the tech sector had been looking vulnerable following a very rapid ascent since the trough in March.
“I’d be surprised if all the gains were erased,” she said, “but the market has a tendency to over-react in one direction or another, and this [RALLY]was an example of that.”
In Asia, shares in SoftBank fell as much a 4.4 per cent in morning trading in Tokyo, continuing a sell-off that followed revelations by the Financial Times at the weekend that the group had made a multibillion-dollar bet on options tied to US tech stocks. Shares in the company recovered before the Tokyo market closed, to end the session 0.3 per cent lower.
Drops
Sterling fell 0.3 per cent against the dollar to $1.31 (€1.11) , having lost almost 1 per cent in Monday’s trading session. The drops came after the FT reported that the UK government was planning legislation that would override parts of Britain’s agreement on withdrawal from the European Union.
Chinese markets traded choppily after US president Donald Trump late on Monday floated the idea of “decoupling” the US economy from China, saying the move would save America “billions of dollars”. Ahead of the European opening, the CSI 300 had gained 0.4 per cent and Hong Kong’s Hang Seng index rose 0.3 per cent, having fallen earlier in the session.
Oil benchmarks continued to struggle, having dropped to their lowest levels in more than a month on Monday, after Saudi Aramco cut its prices for October shipments in a sign it forecasts lower demand for fuel because of the coronavirus pandemic.
The move was most pronounced in West Texas Intermediate crude, which dropped 2.4 per cent to $38.81 a barrel. Brent crude, the international benchmark, was off 0.7 per cent at $41.73. – Copyright The Financial Times Limited 2020