US technology shares were thumped in overnight trading before staging a remarkable comeback. The interplay of growth and inflation is the key market driver. The pressure on bond markets remains, although the US dollar bounced slightly and the heat came out of cryptocurrency markets for the second session in a row.
The Nasdaq 100 index traded 4% lower in the US session as valuation pressure dropped on tech stocks. Rising interest rates are not only drawing attention to stretched valuations, they demand that investors consider opportunity costs as the price of money rises. Despite re-assuring words from the Federal Reserve chairman Jerome Powell, higher inflation could tie the hands of central banks.
Commodities continue to play catch up with buoyant equity markets. Crude oil rose again as supply concerns around a US cold snap boost the outlook. Weekly inventory data showed a draw of more than 10 million barrels of crude oil and distillates, and a number of global investment houses revised their oil price estimates for 2021 upwards.
Bitcoin is trading slightly higher this morning, but is still below $50,000 after a further 5% fall overnight. Although the economic link between Bitcoin and Teslas’ share price is tenuous, sentimental factors mean the two are trading in synch. Both were hit hard initially, and although both recovered from the lows towards the end of trading, but finished significantly lower.
Asia Pacific markets are set for opening losses today. There is a danger that negative momentum could feed on itself especially if bond markets come under renewed pressure. The Reserve Bank of New Zealand is expected to keep rates steady at its meeting today. Australian construction and wages data, and Hong Kong GDP numbers, could influence today’s market action.