Oil still below $80; dollar gains, stocks drop as Fed rate bets hit tech royalty

LONDON — Global stocks fell on Tuesday, led by broad-based declines in technology shares, including SpaceX, as growing expectations for the Federal Reserve to be more aggressive in tackling inflation drove investors into bonds and the dollar.

Futures on the Nasdaq were down more than 2.5%, suggesting Monday's 1.3% slide might extend into a second day. Shares in SpaceX struggled to push into positive territory in Tuesday's premarket, after having lost nearly 17% on Monday, while the likes of Alphabet , Meta Platforms and Microsoft also tumbled.

S&P 500 e-mini futures were down 1.2%.

The STOXX 600 fell 0.8%, under pressure from declines in European semiconductor and chip-equipment makers, which followed declines in tech stocks in Japan and South Korea, where Seoul's KOSPI index fell 10% in its largest one-day selloff since March.

"Questions are once again being raised over AI infrastructure spending, particularly as some corporate giants plan to sell equity to help fund expansion," Trade Nation senior market analyst David Morrison said.

"Time will tell if this is yet another ‘buy the dip’ opportunity, or a harbinger of worse things to come."

Oil remains below $80 a barrel

Meanwhile, Brent crude futures remained below $80 a barrel on Tuesday, as the number of vessels transiting through the Strait of Hormuz continued to build, with oil prices in the physical market almost back to pre-war levels.

A drop in oil prices would ordinarily give stocks a boost, but investors are now focused on what the surge in energy prices will mean for central bank policy and, specifically, the Federal Reserve. New chair Kevin Warsh looks set to take a much tougher line on inflation.

As such, 2-year Treasury yields, which are the most responsive to shifts in expectations for inflation and rates, have shot to their highest levels in 16 months, while longer-dated yields have also risen sharply. On Tuesday, 2-year and 10-year yields were both down around 3 basis points on the day at 4.20% and 4.49%, respectively.

"The adjustment higher in US yields is creating a more challenging backdrop for risk assets in the near term after strong gains in recent months," MUFG currency strategist Lee Hardman said.

Money markets show investors are close to fully pricing in a rate rise by September. Against that backdrop, the dollar is at one-year highs against a basket of currencies.

Japanese yen around 40-year lows

Much of that strength has come at the expense of the Japanese yen, which on Tuesday was flat at 161.58 versus the dollar, having neared 40-year lows the previous day.

The euro fell below $1.14 to hit one-year lows in response to investors cutting back their bets on the European Central Bank raising rates much further.

Japanese Finance Minister Satsuki Katayama said on Tuesday she had held an online meeting with US Treasury Secretary Scott Bessent a day earlier to discuss global financial markets, which analysts said suggested an increased risk of official intervention from Tokyo to prop up the yen.

Meanwhile, on the 10th anniversary of the Brexit vote that saw Britain leave the European Union, the pound was down 0.3% to $1.3216. Sterling was dented on Monday after British Prime Minister Keir Starmer said he would resign, paving the way for what is expected to be an orderly transfer of power to Andy Burnham.

With expectations rising for US rate rises this year, gold came under pressure, falling 1.7% to $4,120 an ounce. In cryptocurrency markets, bitcoin fell 3% to $62,500, while ether dropped 4% to $1,660. — Reuters