Tech Stocks Slide as Traders Rein in Rate Cut Bets: Markets Wrap

📰 Tuesday Morning Financial News Brief 📰

Morning Update:

- The US dollar remains stable amid Russia tension and anticipation of key US data impacting interest rates.

Stock market opens positively, but Nasdaq 100 continues to slide as tech stocks face profit-taking.

- Traders adjusting rate cut expectations following Fed Chair Jerome Powell's comments on possible rate increases.

- Political strife in Russia has minimal impact on market sentiment, analysts say.

- Investors await Q2 earnings releases and Federal Reserve guidance, particularly on the possibility of a July rate hike.

- Asian markets cautious amid interest rate outlook and risks associated with China's economic recovery and Russian developments.

- S&P Global revises China's 2023 growth forecast to 5.2% from 5.5%, reflecting uneven recovery.

- Yen remains around 143.40 against the dollar, raising concerns for officials in Tokyo.

- Modest gains seen in U.S. crude, Brent, and spot gold; dollar index edges up; U.S. Treasury yields steady.

- Key events today include US new home sales, durable goods, and Conference Board consumer confidence.

Market Overview.

The stock market kicked off the day on a positive note, with major indices showing strong gains. However, the Nasdaq 100 continued its downward trend, sliding for a second day as technology stocks faced profit-taking. Monday saw a 1.4% drop in the Nasdaq 100, following its worst week since March. Tech favourites, including Nvidia Corp. and Meta Platforms Inc., experienced declines, while Tesla Inc. slumped 6.1% after Goldman Sachs Group Inc. expressed a less bullish outlook for the electric-vehicle maker.

Traders are adjusting their expectations regarding interest rate cuts by the Federal Reserve this year. Fed Chair Jerome Powell's recent comments, signalling the possibility of one or two rate increases in 2023, have prompted traders to unwind their rate cut bets. Concerns are growing among investors that central banks' efforts to combat inflation may result in higher interest rates, potentially impacting fragile economies.

Despite a short-lived uprising in Russia, the markets remained largely unaffected. The political strife in Russia, which saw Yevgeny Prigozhin halting the advance of his Wagner mercenary group towards Moscow, had little impact on market sentiment, according to analysts. Geopolitical uncertainty continues, but as long as commodity prices remain stable, markets are expected to overlook Russian political volatility.

While government bonds experienced gains during a global bond rally, early gains in Treasuries faded. The yield on the two-year bond settled at 4.74%, while the 10-year bond stood at 3.72%.

Markets are currently in a holding pattern as investors await second-quarter earnings releases, which may mark the end of the earnings recession. Additionally, they are looking for more guidance from the Federal Reserve, particularly regarding the possibility of a July rate hike. Oil prices advanced but remained below $70 a barrel, with traders monitoring the potential impact of prolonged turmoil in Russia on global crude markets.

In Asian markets, investor caution prevails as they await clues on the interest rate outlook and monitor risks associated with China's economic recovery and developments in Russia. The MSCI Asia Pacific index outside Japan saw slight gains, while Japan's benchmark Nikkei average fell by as much as 1%.

S&P Global has revised China's economic growth forecast for 2023 to 5.2%, down from an earlier estimate of 5.5%, reflecting the uneven nature of the country's recovery from the pandemic. This adjustment follows similar downward revisions by major investment banks.

The impending end-of-quarter rebalancing flows in U.S. stocks are closely watched by investors, as they anticipate potential shifts in stock prices and market sentiment. The combination of month-end and quarter-end rebalancing adds an element of anticipation and uncertainty to the market dynamics.

Geopolitical turmoil, including the aborted mutiny in Russia over the weekend, has dampened risk appetite. Investors remain cautious, as any future insurrection against Russia could trigger defensive reactions in safe-haven assets.

In energy markets, U.S. crude and Brent both experienced modest gains, while spot gold saw a slight increase. The dollar index edged up, and ten-year U.S. Treasury yields remained steady in early Asia trade.

As the market awaits further economic data and geopolitical developments, investors are preparing for potential shifts in market conditions and adjusting their strategies accordingly.

Key events Today:

• US new home sales, durable goods, Conference Board consumer confidence.

Take the time to stay informed and monitor market developments as you navigate investment decisions. Conduct thorough research, consult with financial advisors, and remain vigilant in your investment strategies.

Remember, this information is for educational purposes only and should not be considered as financial advice.