LONDON – Global stock markets were set for a second day of sharp losses on Tuesday as the combination of inflation worries.

Wall Street's main indexes opened sharply lower and the Nasdaq shed 2 percent on Tuesday, weighed down by technology-related stocks with lofty valuations on worries over inflation. 

The Nasdaq Composite dropped 286.0 points, or 2.13 percent, to 13115.854 at the opening bell. The Dow Jones Industrial Average fell 170.1 points, or 0.49 percent, at the open to 34,572.74 and the S&P 500 fell 38.1 points, or 0.91percent, at the open to 4,150.34.

Europe had touched a record high on Monday but its restart was a sea of red as London’s FTSE, Frankfurt’s DAX and the CAC 40 in Paris all dropped roughly 2 percent.

Asia’s main regional equity gauges had suffered their biggest slide in nearly two months overnight, with Japan’s Nikkei and Hong Kong’s Hang Seng both closing down 3 percent.

It had followed a 3.6 percent slump in the US FANG+ index of megacap tech firms on Monday. Electric car pioneer Tesla had skidded 6.4 percent and Google fell 2.5 percent.

 “The underlying driver is that there is still a rotation out of duration (higher interest rate) sensitive parts of the market and this is why tech stocks are coming under pressure now,” said Mizuho’s Head of multi-asset strategy Peter Chatwell.

“Given the rise in the earnings power of these firms different governments will also seek to raise more tax revenue from them in the coming years.”

Inflation angst

The cost of raw materials from copper to wood to wheat have been soaring over the last month, testing the views of top central bankers that rises in inflation will be transitory as economies emerge from COVID-19 lockdowns.

US breakeven rates, which factor in inflation, have scaled multi-year peaks. Most euro zone bond yields edged back up on Tuesday while a market gauge of long-term inflation expectations was nearing its highest in over two years.

A host of Federal Reserve and European Central bank speakers this week will be closely watched by markets to assess how authorities are likely to respond.

A test case on US inflation will come when the Labor Department releases consumer price index report on Wednesday.

“Inflation’s shadow looms large and we do think that there is a limit to the Fed’s tolerance of inflation,” DBS Bank said in a note.

In currency markets speculation that growing price pressure would erode the dollar’s value kept the US currency near a 2-1/2-month low.

A consolidation in commodity markets after their surge on Monday kept the Australian dollar just below a two-month high at US$0.7827. The Canadian dollar stabilised near a four-year high, while the New Zealand dollar perched comfortably at February highs.

Oil prices gave up earlier gains as concerns that rising COVID-19 cases in Asia will dampen demand outweighed expectations that a major US fuel pipeline could restart swiftly.

US crude dipped 0.66 percent to US$64.49 a barrel. Brent crude fell to US$67.84 per barrel.

Metal markets saw copper prices start to nudge higher again. They were last at US$10,470 a tonne having hit a record high US$10,747.50 the previous session. Iron ore had settled too after surging 7 percent on Monday.