Tech stocks retreat, leading markets lower

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08/09/2020
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Having enjoyed considerable upwards momentum over the past 5 or so months, the major US based technology names pulled back sharply last week. Early week trading saw a resumption of the previous positive trend, however, sentiment switched as the week progressed with the main US indices falling sharply on Thursday and Friday. It was difficult to establish a catalyst for the reversal in fortunes although it's likely that investors could have decided to bank some profits with valuations having expanded sharply over the past few months (1).

In the US, the S&P500 fell by -2.3% in local currency terms although it remains in positive territory for the year whilst on the Continent, the German DAX30 and French CAC40 declined by -1.5% and -0.8% respectively. Closer to home, the domestic markets also came under selling pressure despite having a minimal exposure to the technology sector. A further deterioration in Brexit negotiations with the EU contributed to a -2.8% fall in the FTSE100 and a -2.4% pullback by the FTSE250. In Japan, the Nikkei rebounded from the previous week’s fall which was caused by the shock announcement of Prime Minister Shinzo Abe’s resignation on health grounds. The Japanese main market added +1.4%.

With equity markets retreating, UK gilt yields crept lower with the 10-year falling by 5 basis points (bps) to 0.27%. In the Eurozone, the 10-year benchmark yield declined by 4bps to -0.49% whilst the Japanese equivalent closed the week at 0.04% after a 2bps reduction. US treasuries were little moved with the 10-year rising by a single basis point to 0.72%.

In the commodity markets, Brent crude declined sharply, reversing some of the gains of the previous 2 months. The wider market sell-off coupled with lower demand expectations as the summer driving season comes to an end helped lead the price lower. Gold also saw a negative week with the precious metal declining by -2.3% to $1,921 an ounce.

 

Week Ahead

 

It’s a busy week for domestic economic data releases with a number headline figures published before the close of play on Friday. On Tuesday, monthly retail sales from the British Retail Consortium are due whilst on Thursday, a slew of major figures are announced including monthly GDP from the ONS as well as industrial and manufacturing production.

In the US, CPI inflation is the most notable publication this week with both the headline and core CPI index expected to have fallen during August. Eurozone data is centred around Tuesday’s revised Q2 GDP number which is forecast to be little changed from the -12.1% reduction calculated last time. On Thursday, the European Central Bank hosts its monthly policy meeting although no changes are expected to be made this time around.

Inflation data is also amongst the more notable data releases in China this week. Monthly trade data was published during the early hours of Monday morning whilst data on Friday will reveal the pace of foreign direct investment into the country so far this year. Meanwhile in Japan, revised GDP data is also the standout data release this week with the fall in Q2 economic growth forecast to be downgraded further from the previous estimate of -8.1%.

 

(1) T Rowe Price

(2) Forex Factory 

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