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Wall Street’s tech-heavy benchmark was heading for its worst day in two and a half months on Tuesday as worries about a regulatory clampdown by Beijing swept into US markets.
The Nasdaq Composite index, which has a strong weighting of leading US tech groups, was down 2.2 per cent at lunchtime in New York, on track for its biggest daily fall since mid-May. The broader S&P 500 index slid 1 per cent, having joined the Nasdaq a day earlier at a record high.
The retreat sent investors in search of haven assets, such as government debt, leading to a rally in US Treasuries. The yield on the 10-year note, which moves inversely to its price, dropped 0.04 percentage points to 1.24 per cent.
The moves came after Beijing ruled that private education businesses could no longer make profits or raise capital, feeding fears of a broader regulatory crackdown. China’s government had already taken strong antitrust measures against some of the nation’s largest technology businesses.
The US sell-off followed a rout in Asia, where the CSI 300 index of large Shanghai- and Shenzhen-listed closed down 3.5 per cent while an 8 per cent fall in the Hang Seng Tech index, helped drag the broader Hong Kong stock market 4.2 per cent lower.
“The spectre of [Chinese] state intervention into controlling the private sector has created a crescendo of panic selling,” said Jefferies equity strategist Sean Darby.
The moves by Beijing had also unsettled global investors because they “will cause worries about China trying to reduce the influence of market forces in its economy”, added Nitesh Shah, WisdomTree research director.
“Markets have . . . been in a Goldilocks period for so long that anything unexpected causes outbreaks of paranoia,” Shah added.
US equity investors also turned cautious ahead of the conclusion of the Federal Reserve’s latest monetary policy meeting on Wednesday.
Investors do not expect the Fed to announce any major changes to its pandemic-era policy, but traders remain alert to any clues that may signal that policymakers will withdraw support for an economy that is rebounding strongly from its worst contraction in decades.
“We are not expecting any action [on monetary policy] until the back end of the year,” said Ayesha Akbar, multi-asset portfolio manager at Fidelity International. But until the path of monetary stimulus and interest rates became clearer, she added, stock market investors could remain stuck in a tussle between euphoria about economic growth and concerns about tighter Fed policy.
US consumer price inflation hit 5.4 per cent in the 12 months to June, which Fed chair Jay Powell characterised as a temporary trend.
“We are all worried about inflation pressures and whether they are temporary or permanent,” added Akbar.
In Europe, Dettol maker Reckitt Benckiser’s shares fell more than 8 per cent on Tuesday after it reported a £1.9bn half-year loss and said rising prices of commodities and other raw materials would “take time to offset”.
“That [inflation] will be transitory has become the mantra of central banks,” WisdomTree’s Shah said. “I think there is something more permanent about it, particularly as companies [that] have suffered margin pressure prepare to raise their prices,” he added.
The continent-wide Stoxx Europe 600 index closed down 0.5 per cent, with tech again the worst-performing sector.
The dollar index, which measures the greenback against major currencies, lost 0.3 per cent on Tuesday. Brent crude, the global oil benchmark, added 0.3 per cent to $74.26 a barrel.