FAANGS dive on antitrust probe

June 4, 2019

Equity benchmarks in Asia followed Wall Street lower overnight after a selloff in technology stocks dragged the Nasdaq 1.6% lower and into correction territory. Weak economic data and escalating US – China trade tensions also fuelled fears of a global downturn, supporting flows into safe havens. European futures are pointing to a milder drop on the open and US futures are aiming for a stronger start.

FAANGS dive on antitrust probe
The Nasdaq was hardest hit overnight with tech stocks and most notably the FAANG group plummeting amid concerns of US government antitrust probe of the tech giants. This comes following a myriad of controversies at the companies and amid growing calls for the companies to be broken up. Facebook dived 7.5% whilst Alphabet was down some 6%, Amazon and Apple also contributed to the sectors losses. The timing here is just really bad. Tech stocks are suffering heavily from the focus on the sector during the trade stand off. It is turning into a technology cold war. And now this from the Justice Department and Federal Trade Commission. Its easy to see why investors are selling out. Any upside is looking very limited here.

Fed’s next move a cut?
Investors are now shifting their focus towards central banks. Expectations of a Fed rate cut increased following an unexpected contraction in the US manufacturing sector and following comments from the Fed’s James Bullard on Monday. The St Louis Fed President said that a cut to interest rates “may be warranted soon” given the trade risks and muted inflation.

The dollar shed 0.6% versus a basket of currencies in the previous session. It is flat in early trade on Tuesday. US futures however, are moving higher on the prospect of loser monetary policy and an absence of fresh trade rhetoric from Trump whilst he is being entertained by the Queen of England.

Aussie dollar bounces despite RBA cut
The lean towards loser monetary policy was put into action overnight by the RBA. As expected, the central bank cut rates by 25 basis points. The Aussie dollar bounced post announcement which had been fully baked into the price. Australian stocks defied the broader negative trend in Asia and moved higher on the prospect of cheaper borrowing costs.

A more dovish ECB?
The ECB will make their policy announcement on Thursday. Inflation data for the bloc is due to be released today and is expected to show a drop to 1.3% year on year, down from 1.7% in April. With inflation moving further away from the ECB’s 2% target, German unemployment on the up and economic growth looking shaky, a more dovish Draghi is likely. The question for euro traders is just how dovish we can expect Draghi to be? Less so than recent Fed commentary and the euro could extend gains versus the greenback.