Ebene Magazine – US Open inflation fears tech sell-off will continue

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Fiona Cincotta
May 11, 2021 1:51 p.m.

The tech sell-off is likely to continue after weakness in Asia and Europe. Inflation concerns have rotated high-growth technology stocks in the previous session and this shows no signs of easing.

Chinese PPI data continued to scare the markets overnight as inflation at the factory gate was 6.8% yoy above forecasts. This was the fastest increase since 2017.

The data is ahead of tomorrow’s US CPI. While the Fed has insisted on seeing rising inflation as temporary, rising commodity prices are making the market issue such a position.

There are several Fed spokesmen who may calm market nerves before the CPI is released tomorrow / p> The Nasdaq fell -2.5% in the previous session and should underperform again, with futures pointing to an additional drop of -1.7% in the open. Rising inflation concerns feed the rotation from growth into value. The Dow futures are aiming for a slight loss of 0.4%. However, there could be more to this step. Technology stocks have high valuations and also appear vulnerable to future regulatory risk. Yesterday, Citi downgraded both Facebook & Amazon from purchase to neutral.

Just days after the shockingly poor non-farm payroll report, JOLTS jobs are expected to have 7.5 million open positions, almost on the Record high of 2019. This underscores the discord in the job market over a mismatch between skills and job openings or availability and availability openings.

The Dow futures are moving down, extending the losses from the previous session. They deviate from the recently reached all-time high of over 35,000. The Dow is still trading above its 50 sma and several month ascending trendline and is testing its 20 sma at 34600. The decline has bought the RSI out of the overbought territory. The uptrend remains intact while the price is above 34250. A move below 37000 could cause sellers to gain ground for a deeper sell-off towards 33250. With a break above 35,000 new all-time highs could be reached.

EUR / USD outperforms in the G10 range in view of the optimistic German ZEW economic sentiment. The index rose from 70.7 in April to 84 in May, well above its forecast of 71. The improved outlook comes from the surge in vaccination programs in the country and the decline in cases of Covid. Around 30% of EU citizens had at least one sting.

Oil trades lower as it is recognized that the colonial pipeline disruption will most likely be a temporary shutdown. Operations are expected to start today and operations to be fully completed by the end of the week.

The ongoing Covid crisis in India is putting pressure on the oil price. Indian oil refineries are reducing production and crude oil imports as rising cases have led to a decrease in fuel consumption. Given that India is the third largest oil importer, this worries the oil market.

Looking ahead, crude stock data is expected to provide more support for the oil price. After a preliminary draw of 8 million barrels, another 2.3 million barrels are expected.

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