Tech Selloff Deepens as Traders Brace for Hot CPI: Markets Wrap

(Bloomberg) — Technology stocks were set to pull US equities lower for a second session as traders pared exposure ahead of an inflation reading that is expected to hit the highest level in more than three years.

Nasdaq 100 futures slid 1.3%, a day after a second bout of sharp swings in high-flying chipmakers in less than a week. Contracts on the S&P 500 fell 0.9%. Europe’s Stoxx 600 dipped 0.3%, with the tech and oil sectors the worst performers as investors rotated into economically sensitive stocks.

Oil prices nudged lower despite a round of retaliatory attacks between the US and Iran. Brent fell below $91 a barrel as traders focused on whether peace talks could unlock flows through the Strait of Hormuz. Treasury yields were little changed after Tuesday’s bond rally.

Tech stocks are turning volatile after an unprecedented rally as traders grapple with a growing list of risks. Expectations are rising that the Federal Reserve will need to raise interest rates to combat oil-driven inflation, while a lineup of massive initial public offerings threatens to soak up investor cash.

For now, the focus will be Wednesday’s consumer price data for May, which may offer the clearest signal yet on whether a Fed led by Kevin Warsh will keep borrowing costs higher for longer.

“Not only are we oscillating between deal or no deal with the US and Iran, but markets are also swinging between 1999-style AI exuberance and 2000-type tech crash fears,” noted Jim Reid at Deutsche Bank AG. “All we need now is a volatile US CPI print today to keep the pattern going.”

Economists surveyed by Bloomberg expect annual inflation to accelerate to 4.2% in May, the highest since April 2023, from 3.8% a month earlier. Core inflation, which excludes food and energy, is projected to edge up to 2.9% from 2.8%.

JPMorgan’s Market Intelligence desk said options were pricing in about a 1% move for the S&P 500 for the most likely core inflation month-on-month print. Any upside shock above 0.35% could prompt the benchmark to fall by as much as 3%.

“On the fixed income market, from what I see, positioning points toward Fed hike risk,” said Andrea Gabellone, head of global equities at KBC Securities. “The short-end of the curve is being very sensitive to today’s inflation print.”

Traders are also watching whether peace talks in the the Middle East remains on track after the US and Iran exchanged strikes overnight. An Iranian foreign ministry spokesman said Tehran will review the diplomatic process in light of the attacks, exposing the fragility of talks between the warring sides.

What Bloomberg Strategists Say:

“If the economists’ prediction that the US CPI headline number has gone beyond 4% is accurate, the pain will be most likely felt in 10- and 30-year Treasuries. While the two-year Treasury will be under pressure, the markets are cognizant that the Fed may not act immediately.”

— Ven Ram, cross-asset strategist. For the full note, click here.

Corporate News:

Starbucks Corp. is considering options for its Japanese business including a stake sale, according to people familiar with the matter, following the disposal of a majority interest in its China operations. SoftBank Group Corp.’s talks with potential creditors to raise at least $6 billion from a margin loan backed by its OpenAI stake have stalled, people familiar with the matter said. Taiwan Semiconductor Manufacturing Co. reported a 30% rise in its monthly sales, reflecting continued strength in demand spurred by a global rush to build AI infrastructure. Some of the main moves in markets:

Stocks

The Stoxx Europe 600 fell 0.3% as of 10:11 a.m. London time S&P 500 futures fell 0.9% Nasdaq 100 futures fell 1.3% Futures on the Dow Jones Industrial Average fell 0.7% The MSCI Asia Pacific Index fell 2.1% The MSCI Emerging Markets Index fell 2.5% Currencies

The Bloomberg Dollar Spot Index was little changed The euro rose 0.1% to $1.1555 The Japanese yen was little changed at 160.42 per dollar The offshore yuan was little changed at 6.7803 per dollar The British pound was little changed at $1.3386 Cryptocurrencies

Bitcoin fell 1.6% to $61,122.76 Ether fell 2.6% to $1,616.61 Bonds

The yield on 10-year Treasuries was little changed at 4.52% Germany’s 10-year yield advanced one basis point to 3.05% Britain’s 10-year yield was little changed at 4.90% Commodities

Brent crude fell 0.5% to $91.01 a barrel Spot gold fell 2.1% to $4,169.88 an ounce This story was produced with the assistance of Bloomberg Automation.

–With assistance from Neil Campling.

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