Tech sell-off drives US stocks lower

US stocks tumbled on Wednesday on technology, while Treasuries tumbled after a surprise hike by the Bank of Canada stoked expectations that central banks might not stop raising rates.

Wall Street’s core S&P 500 lost 0.4% on technology and communications stocks. The Nasdaq Composite Technology Index fell 1.3%.

The Russell 2000 Small-Cap Index climbed to its highest level since the US regional banking crisis in March before slipping 0.3%.

The index has risen nearly 8 percent since the end of May, outperforming the S&P 500 and Nasdaq Composite over the same period, which both rose 2 percent.

A line chart of the Russell 2000 index showing the rise in U.S. small-cap stocks since May

Francesco Pesole, FX strategist at ING, said: “Small-cap stocks are rising primarily on the back of a recovery in US regional bank stocks, which re-entered the investment-grade bond market this week for the first time since the start of trading. banking crisis.

The KBW Regional Banking Index added 4% on Wednesday, continuing gains from the previous session.

Elsewhere, US Treasury yields rose after Canada’s central bank unexpectedly hiked interest rates on resilient inflation that picked up again in April. The 2-year bond yield edged up slightly to 4.54 percent, while the 10-year Treasury yield rose 0.09 percentage points to 3.79 percent. Yields rise when prices fall.

“We have seen U.S. yields rise on the news that Canada is raising rates, and that is because we are starting to see a problematic trend, which is central banks saying the job is not done yet,” said Francis Donald. chief economist at Manulife Investment. Control.

The moves also come after data on Wednesday showed the U.S. trade deficit widened $14 billion in April to $74.6 billion, while exports fell 3.6% to $249 billion, the most since the start. pandemics. Imports increased by 1.5% to $323.6 billion.

European indices followed Wall Street lower. The regional Stoxx 600 ended the day down 0.2%, while the French CAC 40 fell 0.1%. The London FTSE 100 traded unchanged.

Germany’s Dax fell 0.2% after data showed that industrial production in the eurozone’s largest economy rose 0.3% in April, rebounding from a contraction in the previous month but falling short of economists’ expectations of a 0.6 increase %.

The moves come a day after a survey by the European Central Bank showed that consumers were steadily lowering their inflation expectations in the eurozone.

Traders are watching the data closely ahead of the ECB meeting next week, which is expected to raise the deposit rate from the current level of 3.25% to prevent protracted inflation.

Annualized consumer prices in the 20-nation common currency bloc rose 6.1 percent year-to-date through May, down from 7 percent in April, but investors expect prices to remain too high to persuade policymakers to stop raising rates.

“While the ECB would welcome a reduction in inflation expectations, its job is far from over,” said Mohit Kumar, chief European financial economist at Jefferies.

Asian equities were mixed, with Hong Kong’s Hang Seng gaining 0.8% and Japan’s Topix shed 1.3%.

China’s CSI 300 lost 0.5 percent after data showed Chinese exports fell more-than-expected in May, further dampening the country’s hopes for a strong economic recovery from the Covid-19 pandemic.

The Turkish lira fell 7.6% to new record low up 23.2 against the dollar as the country eased its longstanding fight to defend the currency.

Oil prices rose, with international benchmark Brent added 0.8 percent to $76.86 and US marker West Texas Intermediate added 1 percent to $72.46.