Rebound in risk appetite fizzles out

European markets are deep in the red this morning, with investors clearly worried that the tech sell-off has further to run.

• Tech drop infects other indices.

• Growth out of favour.

• Volatility’s return catches investors on the hop.

The rout in tech stocks is making itself felt across global indices, with heavy losses in European markets so far this morning. Markets also find themselves caught between Chinese PPI figures which confirmed the inflationary trend (even if it is ‘transitory’) and US CPI numbers tomorrow that could well do the same. This could be enough to cancel out any remaining positive feeling from last Friday’s US job numbers, which for a brief while seemed likely to slay concerns about inflation, rate hikes and QE tapering. That view didn’t last much beyond yesterday morning, and has been replaced with a wave of selling in high-growth names that has yet to reach an end. For the second time in three months the previously-unassailable Nasdaq is suffering heavily even as other indices hold steady by comparison; yesterday’s brief sojourn above 35,000 on the Dow may have been rapidly countered, but the contrast is clear.

The volatility of the past 24 hours has once again caught investors napping. In contrast to expectations, 2021 has been a quiet year overall for major indices, with downward shocks confined to growth names and upward surges mostly concentrated in various esoteric alternative assets driven by a speculative frenzy. But as we move into the poorer period of the year for markets from the strong October-April period it will be harder for indices to maintain their sang-froid. Inflation worries are not going away, and are going to get louder and more insistent.

Ahead of the open, we expect the Dow to start at 34,587, down 145 points from Monday’s disappointing close.