December 5, 2021
Nasdaq Composite registrava a maior alta entre os índices

The recent declines in U.S. technology stocks have nothing to do with inflation

Technology stocks fell sharply in a strong trading session on Tuesday Nasdaq Composite, US tech stock index, on the worst day since March.

The largest American companies recorded the largest losses. Apple (AAPL) fell 2.4%, Microsoft (MSFT) 3.6%, Amazon (AMZN) 2.6% and Facebook (FB) 3.7%. Chip makers Intel (INDC) and Nvidia (NVDA) were also affected.

The move comes with inflation fears that bond yields will rise and interest rates will approach.

Barriers in the supply chain and rising prices due to increased consumer demand have driven markets year-round, even as commodities hit record highs. But on Tuesday, Wall Street stock markets focused on two recent developments.

Inflation expectations are rising

Last week, the Federal Reserve raised inflation forecasts for 2021, 2022 and 2023. It now expects the personal consumption spending index to rise 3.7% this year, as the central bank’s preferred measure to monitor prices. In June, an increase of 2.3% from 2.3% next year.

Headline inflation is expected to be 2.2% by 2023, well above the central bank’s 2% target.

The Bank of England said it did not think inflation would peak, while believing inflation would pass. Rising energy costs, which can contribute to severe winters, have become a particular concern.

These developments will soon allow central banks to raise interest rates from their historic fall. In its latest forecast, the central bank indicated that it may start raising rates next year instead of 2023.

If there are signs that inflation is out of control, the reversal of bond-buying plans may be more serious.

“Solution induced by interest rate [terça-feira] It is a reminder of the impact that monetary stimulus has had by signaling the central bank to remove emergency stimulus measures quickly, ”said Charlie Ripley, senior investment strategist at Alliance Investment Management.

Bond income

However, the most immediate concern is what is happening in the bond markets as a result of fears of inflation. In recent days, investors – in view of the forthcoming action of the central banks – have been selling government bonds and increasing yields.

This affects technology stocks. When government bond yields are very low, it increases interest in risky investments that provide better returns. The valuation of technology companies is linked to future revenues, which seem to be dim when it comes to inflation and higher rates.

Today, technology stocks have set the pace for the overall market. In a note sent out on Tuesday, Goldman Sachs reminded customers that ICT services now represent 40% of the S&P 500’s market value.

Fidelity credit limit and change

Moreover, these are not the only obstacles that markets are trying to overcome. There are concerns about the US credit limit, China’s economic growth and the central bank restructuring.

On Tuesday, Senator Elizabeth Warren said she was opposed to the reappointment of President Jerome Powell, calling him a “dangerous man.”

“It created at least some uncertainty – and considering the pressures coming from the bond market and Capital Hill, it could not have come at a bad time for stocks,” said Wells Fargo stock strategist. Christopher Harvey, in a note to clients on Wednesday.

Looking ahead: European equities are already accumulating and the US futures are likely to regain some of the land that equities lost. But analysts believe the volatility will continue to fuel fuel in the coming days.

Evergrande’s problems are not over

China’s Evergrande needs to raise the capital it needs for its financial health with the help of Beijing. But the fate of the heavily indebted developer remains uncertain, which continues to pose a risk to the country’s markets and economy.

Evergrande recently reached an agreement to sell a stake in local lender Zhengjing Bank to the state-owned Shenyang Zhengjing Financial Investment Group for about 10 billion yuan, or about $ 1.5 billion. Investors applauded the news, sending nearly 16% of the shares in Hong Kong.

Nevertheless, the company still faces $ 300 billion in debt. Also the bond maturity period is approaching.

In recent days, the Chinese government has taken steps to protect markets and consumers in advance, paying into the financial system to stabilize the situation and calm the nerves.

There has also been speculation that Chinese officials may ask government agencies to support Evergrande.

But Beijing’s strategy is not yet clear. “Is the government preparing for Evergrande to stop paying all of these bonds? It will create market volatility,” said Iris Pang, chief economist at ING. “Or does the government want Evergrande to continue to operate, build and sell?” We are not sure yet. ”

The largest US bank is preparing for default

Jamie Dimon, CEO of the largest US bank, is relocating Preparing for potential US default effects. But he says it very clearly: he is not happy about it.

In an interview with Reuters on Tuesday, Dimon said JPMorgan began to outline how the potential default would affect US financial markets, capital rates, customer deals and credit ratings. In other cases the bank has gone through a similar process when the country has almost gone into the credit ceiling.

Timon said he hopes Congress will finally reach an agreement, except in the event of a “catastrophic event.” However, he is tired of the crash.

“Every time it happens, it will be fixed, but we should not get too close to it,” Timon said. “I think it’s all wrong. One day we have to put a bilateral bill and get out of the debt ceiling. It’s all political.”

Treasury Secretary Janet Yellen told lawmakers Tuesday that the federal government will not be able to pay its bills unless any action is taken by October 18.

“It is uncertain whether we will continue to fulfill all the obligations of the country after that day,” Yellen wrote in a letter.

The warning came just hours after the Senate Republicans blocked a bill to raise the debt ceiling, leaving both parties at a standstill with no resolution. Democrats want Republicans to join a bipartisan vote to raise the debt ceiling, but Republicans insist they will not and urge Democrats to go it alone. The rest of the week promises to be tense.

(Translated text. Click here Read the original, in English)