Tech Selloff Weighs On Sentiment

Fiona Cincotta
By :  ,  Senior Market Analyst

European bourses have opened lower on Wednesday, tracing Wall Street and Asia lower overnight. Whilst geopolitical concerns are fading, investors focus their full attention on tech stocks, which dragged US indices lower.  

The Dow finished over 340 points lower despite having been over 300 points higher, the S&P lost 1.7% heading back towards its 200-day moving average, whilst the tech heavy Nasdaq shed 2.9% in its third worst session this year. 

Glancing back over 2017 the strong run up in the US equities was largely down to an almost 40% rally in US tech stocks. A reversal of fortunes for this sector hit the US indices hard and in now weighing on Europe in early trade.

Facebook contagion drags tech stocks lower

Facebook continued to fall dropping a further 4.9% and taking losses to 20% from its February peak as the fallout from the data mismanagement scandal continues. 

The overriding concern is that lawmakers and regulators will start to clamp on the use and management of data by the tech giants. Increased regulation could hit advertisers, Facebook's main income source, who could have reduced access to user data and therefore no longer be able to focus advertising in the way that they can at the moment. 

A hit to this revenue stream could be catastrophic to Facebook.

There is also the fear than if lawmakers and advertisers are going to clamp down on Facebook, they won’t stop there, and this will become an industry wide investigation on lax control. 

This is making investors more than wary about continuing to tech stock for the time being. Until there is greater clarity about how this scandal will be dealt with, investors are more likely to watch from the side-lines.

On the FTSE the losses have been broad based, given the light listing of tech stocks, the miners have been the biggest drag as overall weak market sentiment has weighed on the price of metals.

Spotlight on US GDP

With little in the way of high impacting data this morning investors will be focusing on the US GDP figure later today. 

Although this figure is for the final quarter of last year so won’t include any benefits from the tax cut, or fallout from recent global trade issues, the market will still be tuned in given that lack of influential data points on the calendar this week.

A robust labour market and strong consumer spending in the last quarter of 2017 should be enough to ensure an uplift in GDP to 2.7% on an annualised basis, up from 2.5% in the last revision. 

With March’s rate rise firmly in the rear-view mirror, investors are wasting no time looking ahead. 

No hike is expected in May, but the probability of a June hike is already over 75%. 

Should the US economy be growing faster than forecast, the odds of a June hike could increase, pushing the US dollar index higher, back towards the psychological target 90.00 and the USD/JY to 106.00 handle.

On the contrary, a down beat reading could see the dollar attack 89.00 in the near term whilst the USD/JPY could pare this morning gains and head back towards 105.00

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