The rally in world equities halted on Wednesday, December 6, following tremors in technology stocks which spread to Europe and were set to dent U.S. trading, with weaker metals prices and flagging financials.
MSCI’s world equity index .MIWD00000PUS, which tracks shares in 47 countries, slipped 0.4 percent, on track for its worst fall in three weeks.
The German share price index, DAX board, is seen at the stock exchange in Frankfurt, Germany, December 5, 2017.
Investors concerned about high valuations took the top off the tech sector, where stocks such as Facebook (FB.O), Alphabet (GOOGL.O), Tencent (0700.HK) and Alibaba (BABA.N) have reached prices some describe as “eye-watering”.
Europe’s main index of stocks .MSER tumbled 0.7 percent, dragged lower by chipmakers which have been a crucial driver of growth in the sector and seen stellar price gains this year.
U.S. stocks were set to open lower, with S&P and Dow Jones futures falling 0.1 to 0.2 percent while futures of the tech-heavy Nasdaq were down 0.5 percent.
Ken Hsia, European equities portfolio manager at Investec Asset Management, said he had shifted this year from tech into other sectors, including financials, which he thought would gain from higher yields and fiscal stimuli such as U.S. tax cuts.
“Their valuations needed something more heroic in terms of the earnings growth they were reporting, and we sold some and rotated that into other parts of the market,” he said.
Another negative for the tech sector was a detail of the U.S. tax cut bill being debated in Congress that would limit the scope of tax credits that are key for research and development.
But bank stocks were the biggest drag on Europe’s STOXX 600 on Wednesday as they also slipped back after gaining strongly in the last week on the tax cut plan, as analysts raised concerns that European lenders will benefit less than U.S. peers.
U.S. market volatility .VIX rose again in early trading, its eighth day of gains in the last 10 as investors grew more jittery about stock markets driven to pricey levels by optimism about the economy.
European markets mirrored Asian trading, where MSCI’s index of Asia-Pacific shares outside Japan .MIAPJ0000PUS dropped 1.5 percent to a two-month low on weaker metals prices.
The dollar’s rise on U.S. tax reform hopes has dented base metals which are denominated in the currency.
Copper prices CMCU3 bounced slightly, up 0.6 percent from a two-month low, but European basic resources stocks .SXPP fell 1 percent as metals weakness fed through to miners.
Geopolitical risks also loomed. U.S. President Donald Trump is expected to recognize Jerusalem as the capital of Israel later on Wednesday, a move the Palestinians’ chief envoy to Great Britain said was “declaring war”.
In euro zone debt markets, German 10-year government bond yields DE10YT=RR held close to three-month lows on Wednesday as risk-off sentiment drove investors into safer assets.
The two-year U.S. Treasury yield US2YT=RR fell slightly but still hovered near the nine-year high it had been driven to by the Fed’s monetary tightening plans and hopes tax reform will boost the economy.
The 10-year Treasury yield US10YT=RR also declined, but the yield curve US2US10=RR flattened further, near its lowest in a decade. The flattening yield curve has obsessed investors concerned it may be a sign of imminent market stress.
In commodities, U.S. crude oil futures CLc1 were down 0.7 percent at $57.38 per barrel after American Petroleum Institute data showed that U.S. gasoline stocks and distillate inventories rose more than expected last week.
Emerging stocks .MSCIEF fell 1.7 percent to hit a two-month low, having been bruised by rises in the dollar earlier this week.