Chips are down as tech fears weigh on European shares

Pressure on technology stocks spread from the US to Europe via Asia as mounting problems faced by the sector left valuations looking stretched.

The start of second-quarter trading was also hit by concerns about a deeper trade dispute between the US and China, triggered by sharper rhetoric from President Donald Trump and Beijing’s decision to apply tariffs on US-made food products.

European investors sent the Stoxx index tracking the tech sector down by almost 1 per cent and back toward the lows for the year plumbed last month. Its declines were broad, with only three of its 27 constituents making gains.

Reports that Apple was considering making its own microprocessors unnerved European component makers, adding to the lengthening list of uncertainty faced by the tech sector.

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The biggest fallers were Apple suppliers; component maker AMS and its peer STMicroelectronics were both down by around 3 per cent.

Overall, the Europe-wide Stoxx 600 fell 0.4 per cent.

“Investors who were hoping that the volatility of quarter one was behind them have been left sadly disappointed,” said Rebecca O’Keeffe, head of investment at Interactive Investor.

“Each of the major tech companies appears to have its own particular set of problems to deal with... [while] the major fear for markets is that the imposition of retaliatory import tariffs by China could just be the tip of the iceberg and will cause a chain reaction that drags more sectors and countries into the dispute.”

Regulatory scrutiny

The prospect of deeper regulatory and political scrutiny of Facebook and Amazon in the US left investors keen to reduce their exposure to the so-called Fang stocks. These groups - an acronym for Facebook, Amazon, Netflix and Google that includes other big internet names - played a lead role in taking equities to record highs as recently as January, leaving them particularly vulnerable to selling now that concerns are growing about threats to their business models.

The wider decline took Wall Street indices down 10 per cent from their new year peak on Monday and past the definition of a market correction. Indices around the world followed them lower on Tuesday as traders returned from their long Easter weekend to start the second quarter.

The decline for Wall Street’s S&P 500 was attracting particular attention. The benchmark index fell 2.2 per cent on Monday, putting it below its 200-day moving average, a key technical measure for momentum investors. The technology-heavy Nasdaq dropped 2.7 per cent, erasing its gains for the year.

According to futures trade, Wall Street was set to bounce back on Tuesday morning, with the S&P 500 expected to open up 0.5 per cent and the tech-heavy Nasdaq Composite expected to open up 0.6 per cent.

Jobs data

Wider market sentiment will be tested at the end of the week by the release of US jobs data, which will give investors clues to the outlook for interest rates. Average earnings in March were forecast to rise by 2.7 per cent, with 195,000 jobs created in the month outside the agricultural sector.

In the meantime, traders said the anxiety stoked by Mr Trump’s tweets and trade policies was likely to linger.

Mike Ryan, chief investment officer for the Americas at UBS Wealth Management, said: “The Trump administration’s unorthodox and unpredictable decision-making is likely to keep markets on edge, especially as global trade takes centre stage in policy discussions.”

Copyright The Financial Times Limited 2018