Tech stocks under pressure
Markets remain on the hook to the trade war rumblings, but a new war has opened up that threatens equity investors – a war on tech. What the Fed threatens to give, the DoJ takes away.
Yesterday we saw a soft
start in the US before the ISM print missed and investors raised bets the Fed
will cut rates this year. But the Fed put was not enough to fight the tide off
Fangs are under severe
pressure amid fears they are in the crosshairs of trust busters. The DoJ and FTC are
marking targets and loading up. Whilst it’s far too early to say if any
would, or could, be ripe to be broken up, there’s a real threat this will
depress multiples and mean we need to reset expectations. Given the Fangs have
been at the front of the market expansion in recent years, this will act as a
drag on sentiment as well.
A couple of very big moves
yesterday in Alphabet and Facebook.
Alphabet –6% – support now
seen around $968, before $895 comes into play.
Facebook –7.5% – key
support seen at $159, below that we look to the $145 level.
Calls have been growing
louder and louder for the authorities to at least look at antitrust issues for
the tech giants. Political pressure is building – lawmakers sniff votes in
tackling big tech. The shift really happened last year with Facebook’s
scandals, which broken the illusion of Silicon Valley being in it for the
little guy. They’re just big corporations out to make money like any other –
the politicians can smell blood. As I noted a year or two ago, I always thought
Trump had the hallmarks of a Teddy Roosevelt trust-buster.
So now we have the Nasdaq in
correction territory – down 1.6% yesterday to take it more than 10% off its
all-time highs. The Dow was flat, while the S&P 500 notched a decline of
0.3%. The FTSE 100 ended the day in the green, up 0.3% at 7184 with the key
7150 level holding.
Asian shares followed Wall Street’s lead overnight,
and futures show European shares are under the cosh again today.
US Treasury yields continue
their slide with the 10yr slipping to 2.085% and threatening to find the 2.05%
level now. EURUSD has broken out of technical resistance due to the slide in
yields as markets bet on a Fed rate cut. EURUSD faces resistance at 1.126/7 but
having broken out of the long-term descending wedge we could now look for more
gains. Has the dollar rally ended? Well it all depends on the Fed.
Today’s Jay Powell speech is
now key to market sentiment after dovish comments from James Bullard yesterday.
St. Louis Fed boss James
Bullard – a voting member of the FOMC – says a rate cut may be warranted soon.
He talked about a sharper than expected slowdown. He also discussed a cut as
insurance – some sense the Fed is seeking to get ahead of the curve – too late!
Over to Powell later today.
Bullard has always been one of the
most dovish members of the FOMC – the market may have massively miscalculated
the US central bank’s view of the economy, inflation and risks to its
forecasts. I rather think the Fed will be a lot less ready to ease than the
market thinks, and this suggests a significant decoupling between the Fed and
Ahead of this we have the Eurozone CPI print. The last
reading showed inflation rose to a 6-month high in April at 1.7%, whilst core
price growth rose to 1.3%. However, this uptick seems to be down to
one-offs and the core read is expected to revert to trend around 1% in May,
with the headline print at 1.4%.
Woodford shut – worse
Neil Woodford has
suspended trading in the Woodford Equity Income. Woodford has clearly
made a series of poor investment decisions. Out of love UK stocks with entirely
domestic may have been ultra-cheap, but they’re still unloved and still cheap. Provident
has been a disaster. Kier, whose shares tumbled 40% yesterday, also disaster.
It’s been a tough few years for Woodford and things look like they will get
No surprise the RBA cut
rates, it had been fully priced in. The question now is how many more? The
statement didn’t tell us anything new. No indication there will be more this
year. Worth noting
the RBA’s own forecasts are predicated on 50bps of cuts so we’re only half way
there. Watch the data. AUDUSD has gained a few pips
post the statement, with little detail on future cuts likely to give the bulls
some hope. Resistance at 0.6990, the 38.2% Fib level, tested and rejected.
UK retail sales fell off a cliff in
May – down 2.7%. This is the worst ever decline in retail sales and will hit
the sector today.