Tech stocks retreat on rising Treasury yields
Janet Yellen describes US economic recovery as “fragile but rapid”
Technology stocks suffered on both sides of the Atlantic on Tuesday as rising Treasury yields hit sentiment already dented by a weakening in the Chinese economy caused by power shortages.
By 13:20 BST, the pan-European Euro STOXX 50 and 600 traded down by 1.5% and 1.4%, respectively. The STOXX Europe 600 Technology index stood 3.6% lower at 767.18, a five-week low. The index had recently reached an all-time high of 830.83.
Semiconductor manufacturers particularly suffered, having enjoyed some of the best gains of 2021. Infineon Technologies, ASML Holding and Melexis traded down by 4.5%, 5.3% and 5.6%, respectively.
Logitech slumped by 6% to CHF84.60 (€77.98, $91.14, £67.29) after a severe downgrade by Morgan Stanley analysts. The Swiss computer and software manufacturer has fallen by 24% in the past three months.
The NASDAQ Futures stood 1% lower shortly before the opening bell, with Apple, Microsoft and Alphabet all trading down by 1.6% in pre-market.
Rising US Treasury yields
US Treasury yields continued to rise in the wake of the Federal Reserve’s more solid commitment to taper the substantial bond-buying programme it pursued in response to Covid-19.
The 10-year US Treasury yield rose to a three-month high of 1.54%, up by 21 basis points in the past five days. The two-year US Treasury yield jumped to an 18-month high of 0.317%.
Senate Banking Committee
Speaking to a hearing of the Senate Banking Committee, US Treasury Secretary Janet Yellen described the US’s economic recovery as “fragile but rapid” and warned of the “significant challenges from the Delta variant”.
The economist added: “Still, I remain optimistic about the medium-term trajectory of our economy, and I expect we will return to full employment next year.”Traders and investors will closely monitor the potential market impact of Federal Reserve Chairman Jerome Powell’s speech before the Senate Banking Committee.
In his pre-submitted remarks, Powell slightly yielded that his transitory inflation thesis may not come true, stating: “Inflation is elevated and will likely remain so in coming months before moderating.
“As the economy continues to reopen and spending rebounds, we are seeing upward pressure on prices, particularly due to supply bottlenecks in some sectors.
“These effects have been larger and longer-lasting than anticipated, but they will abate – and as they do, inflation is expected to drop back towards our longer-run 2% goal.”