European markets have been on the front-foot today, as rising US Treasury yields dampen sentiment around tech stocks. Meanwhile, crude oil continues to rise after a push into multiyear highs. 

  • European markets lead the way as value comes back into focus 
  • Rising treasury yields and chip shortages highlight tech fragility  
  • Crude hits multi-year highs, as traders look ahead to Thursday’s infrastructure vote 

European markets are enjoying a positive start to the week, as traders look with optimism at recovery prospects and a potential bullish play for cyclical stocks. US tech dominance has helped drive major outperformance for the Nasdaq over the course of this pandemic, yet we are starting to see that unravel as the Fed moves towards a new tightening cycle. Concerns over the possibility that tech stocks have been pumped up by easy money brings a potential shift towards pro-cyclical laggard which often rise as yields improve. Meanwhile, the well publicised chip shortage shows little sign of slowing after Goldman Sachs seeing struggles on that front until next year. The surge in US Treasury yields seen over the course of the past week highlight the shift in focus towards value stocks, with the likes of the FTSE 350 and small-cap stocks expected to provide relative outperformance as a result. It is somewhat unsurprising to see the financial sector perform well, with stubborn elevated inflation expected to see the Fed raise rates next year.  

Energy prices are on the rise once again today, with Brent crude hitting the highest level in almost three-years. Supply constraints appear to be coming at the wrong time, with demand gradually picking up steam. The restart of transatlantic flights does highlight how we are likely to continue seeing demand for different types of crude products rise as the economic recovery gathers steam. With the House of Representatives due to vote on Biden’s proposed infrastructure bill this Thursday, there is still plenty of grounds for further economic activity despite concerns over monetary tightening.  

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