Global Markets: Sharp Sell-offs in the Technology Sector Continue

Throughout most of the past week, sharp sell-offs in the technology sector continued on global stock exchanges, but their weekly losses were mitigated by a recovery in stock prices on Friday, thanks to the latest inflation data from the U.S., which strengthened investors’ hopes that the Fed might lower interest rates in September after all.

At the end of a very volatile week on Wall Street, the Dow Jones index rose by 0.8 percent to 40,589 points, marking its fourth consecutive week of growth, the longest positive streak since May. Meanwhile, the S&P 500 ended the week down 0.8 percent at 5,459 points, and the Nasdaq fell by 2.1 percent to 17,357 points, marking its second consecutive weekly decline for the first time since April.

Investors continued to direct capital towards cyclical stocks and small-cap stocks last week, with the Russell 2000 index rising by 11.5 percent, achieving a gain for the third consecutive week, the longest period of growth since August 2022.

At the same time, technology stocks remained under selling pressure for most of the week, although on Friday, the stock prices of major tech companies like Microsoft and Amazon somewhat recovered following the release of the latest inflation data, which fueled investors’ hopes that the Fed might indeed start lowering interest rates in the U.S. in September.

It was reported that the personal consumption expenditures index rose by 2.5 percent year-on-year in June, in line with economists’ expectations and slightly less than in May when it increased by 2.6 percent.

The Fed is expected to hold its next monetary policy meeting next week, but markets estimate that the chances of it starting to lower interest rates then are only five percent, although they hope it will do so at the September meeting.

– The market recovery on Friday stems from a combination of oversold stock sentiment, GDP reports that exceeded expectations, and the view that the Fed will begin to lower rates due to economic resilience. A benign inflation report measured by personal consumption expenditures helped pull the market back from the brink – assesses Sam Stovall from CFRA Research.

The U.S. economy accelerated growth in the second quarter, strengthening by 3.1 percent compared to the same period last year, following a growth of 2.9 percent in the first quarter, according to a report from the U.S. Department of Commerce.

In European markets, stock prices rose last week. The London FTSE index ended the week at 8,285 points, up 1.6 percent, the Frankfurt DAX at 18,417 points, up 1.35 percent, while the Paris CAC weakened by 0.23 percent to 7,517 points.

European Markets Start the Week in the Green

On European exchanges on Monday morning, most major indices were in the green, primarily due to rising stock prices of oil companies as oil prices strengthened amid fears of escalating conflict in the Middle East, supported by good corporate earnings.

The pan-European STOXX 600 index was up 0.4 percent around 9:30 AM. Oil and gas company stocks rose the most, averaging 1.3 percent, as crude oil prices surged following a rocket strike on the Golan Heights under Israeli occupation.

At the same time, the London FTSE index rose by 0.63 percent to 8,338 points, and the Frankfurt DAX by 0.34 percent to 18,478 points, while the Paris CAC weakened by 0.16 percent to 7,505 points.

Among individual stocks, the biggest winner was Philips, with a price jump of 8.6 percent, after the Dutch medical device manufacturer reported quarterly results that exceeded expectations, driven by higher earnings and the implementation of a restructuring program.

Shares of German Merck also rose significantly, by 3.6 percent, after the company raised its forecasts based on good operational results in its healthcare and electronics divisions.

The biggest loser, however, was Heineken, with a price drop of 6 percent, after the Dutch brewer reported semi-annual operating profit below analysts’ expectations.

Asian Markets Rise Ahead of Meetings of Three Major Central Banks

On Asian exchanges, stock prices rose sharply at the beginning of the week, during which intense corporate earnings announcements and meetings of three major central banks are expected, with the U.S. and British central banks possibly indicating that they will soon begin to lower interest rates, while the Japanese central bank may do so.

The MSCI Asia-Pacific index was up 0.4 percent this morning around 5:30 AM, following a 2 percent drop last week.

Expectations for rising interest rates in Japan caused the Tokyo Nikkei index to drop by as much as six percent last week, while the yen surged against the dollar by more than three percent. This morning, the Nikkei was up 2.2 percent.

At the same time, the South Korean Kospi strengthened by 1.26 percent, the Hong Kong HSI by 1.8 percent, and the Australian ASX by 0.8 percent.

Investors are pricing in a quarter-point easing of U.S. interest rates, with some estimating that there are chances for a half-point reduction, totaling 68 basis points by Christmas.

– The Fed’s Open Market Committee is likely to keep interest rates at the current level this week but will revise its statement to indicate that a reduction is likely at the September meeting – emphasize analysts at Goldman Sachs.

The Bank of Japan is also meeting on Wednesday, and markets expect a 70 percent chance that interest rates will rise by 10 basis points to 0.2 percent, with some expecting a rise of 15 basis points. Investors are less certain whether the Bank of England will ease monetary policy at its meeting on Thursday, with the chances of a reduction to 5 percent hovering around 51 percent.

Escalation of Violence in the Middle East Strengthens Yen and Oil Prices

In the currency markets, the dollar index, which measures the performance of the U.S. dollar against six major world currencies, weakened by 0.19 percent this morning to 104.17 points.

At the same time, the yen strengthened by 0.17 percent against the dollar, with the dollar standing at 153.5 yen, as the escalation of violence in the Middle East increased demand for investment in safer assets, including the Japanese yen.

The euro, on the other hand, rose by 0.12 percent against the dollar to 1.0868 dollars.

In the oil markets, prices per barrel slightly strengthened due to fears of a possible escalation of violence in the Middle East following a rocket strike on the Golan Heights, which is under Israeli occupation, with Israel and the U.S. blaming the Lebanese armed group Hezbollah.

Brent crude rose by four cents to 81.17 dollars, while U.S. WTI fell by seven cents to 77.09 dollars.