Bubbly tech
A well overdue drop-back in richly-valued US technology stocks overwhelmed diverging political fortunes in Europe. The crunch in technology stocks dominated sentiment on European stock markets, dragging most sectors lower. European equity indices with the least exposure to technology fared the best. Shares of prominent US stocks including Apple (NASDAQ:AAPL) took another drubbing at the open of Wall Street.
Another win for Mercron
It looks like the French have bought wholesale into Emmanuel Macron’s vision for the country, backing him as president and now his party for parliament. The first round of French parliamentary elections would suggest Macron’s ‘On The Move’ party is set to command commanding majority in France’s lower house. French and German bond spreads narrowed as political risk shifted across the channel to a divided United Kingdom. Fixed income investors seem encouraged by the prospect for economic reform in France under Macron. A similar phenomenon was taking shape in Italy. Italian bonds rallied after signs of a setback in the popularity of the ‘Five Star’ movement in local elections.
Threadbare tech keeps FTSE stable
A drop in the value of the pound and the relatively threadbare technology sector (since ARM Holdings (LON:ARM) was absorbed into Softbank) helped stabilise the FTSE 100. While there’s no sign of panic, political uncertainty created by the election left little room for any British company shares to shine. The wider universe of stocks captured by the FTSE 350 saw the tech sector plummet over 2.5%.
US stocks open lower
US Technology shares fell again on Monday after Friday’s crash. Lowered price targets for Apple sent its shares down by over 2% on the open of Wall Street. Other big tech shares were down but faring better with Alphabet (NASDAQ:GOOGL) and Facebook (NASDAQ:FB) down just 0.5% in early trading. The tech sell-off likely stems from some early half-year portfolio rebalancing after outsized returns for the sector. Because stock market gains have been so concentrated within tech, it leaves the sector open to periodic crashes when everybody tries to squeeze though the exit door at the same time.
Soft-boiled Brexit might be overdone
After a brief spell of optimism, sterling rolled over by Monday afternoon as talk of so-called ‘soft Brexit’ was dashed by plans by government plans to begin Brexit negotiations next week. If Theresa May is hanging on as Prime Minister and Brexit negotiations are beginning without delay, it would suggest the stance toward the single market is unchanged. Chatter surrounding a softer Brexit might just be The City might be hearing what it wants to hear. The UK election doesn’t change the EU’s aggressive stance on open trade going alongside open borders. Of course, all this could change if Theresa May doesn’t make it through the week as Prime Minister. Betting odds suggest a one in three chance of another election this year.
Dollar in demand before the Fed
Last week’s rise in the US dollar moderated on Monday as investors gauged what comes next after a likely US rate rise on Wednesday. The US Dollar Index sits near a 9-day high ahead of Fed meeting this week. The euro rose on Monday despite the ECB’s Coeure reiterating that he thinks its ‘too early to discuss tapering’, though admitted inflation is headed in the right direction. Markets are for the moment forgiving the inherent conflict between rising prices and ultra-loose monetary policy in Europe and Japan.
Qatar not a quitter
Crude oil bounced on Monday after Qatari Energy Min Mohammed al-Sada vowed Qatar would continue with its share of OPEC oil production cuts. There’s already a concern OPEC hasn’t done enough to offset US shale production without Qatar quitting the deal. The future of Qatar’s role in the output cuts had been thrown into jeopardy when it was politically chastised by other countries in the region.
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