Futures in the United States are trading lower following the end of the five-day winning streak in yesterday’s session when big tech companies, including Microsoft and Apple, slumped after the clampdown by Chinese regulators on EdTech companies.
Nasdaq, the tech-savvy index, fell the most in two months, as the three major equity indices slid from their highs. The conflict between Chinese regulators and tech companies is causing uncertainty in global equity markets, with stock traders already weighing concerns about future economic growth and rising coronavirus cases against the strength of second-quarter corporate earnings.
The Hang Seng Index has plummeted to its lowest level since May 2020, owing to rumors that US funds are selling Chinese assets. The market panic began when Beijing announced a new set of reforms that would have a negative impact on the operations of EdTech companies in China. According to the new reforms, these companies are not permitted to make profits or participate in stock markets in order to raise capital. This should not come as a surprise to investors, as Chinese regulators have previously taken steps to limit technology companies such as Alibaba.
The Nasdaq Golden Dragon China index has dropped nearly 19% in the last three days. The index tracks the top 98 Chinese companies listed on US stock exchanges. A whopping $829 billion has been wiped out from the index’s stocks. Stock prices for technology behemoths such as Alibaba Group and Baidu fell the most. Today, investors should pay closer attention to the price action of big tech.
Investors should understand that although strong earnings have helped the bulls keep equity indices at record highs, they should actively follow the FOMC meeting which ends today and dissect the monetary policy statement. Investors should be on the lookout for signs of an expected timeline for the tapering of bond purchases and the Fed’s take on macroeconomic indicators such as inflation and economic growth. This would help traders to project potential policies that the central bank could adopt in coming months.
However, investors should not expect any significant changes in the Fed’s monetary policy, as the central bank is closely monitoring the situation and is prepared to take corrective action if necessary. They will also likely reiterate that it is still too early to reduce asset purchases and that inflation is likely to be temporary.
Apple and Alphabet, the two tech behemoths, reported earnings yesterday that outperformed expectations. Alphabet, the parent company of Google and YouTube, outperformed as advertising increased dramatically as the economy recovered from pandemic lows. Investors should keep an eye on Alphabet’s price chart in coming months, as YouTube’s revenue has surpassed $7 billion, up nearly 83% year on year, and is now even rivaling Netflix’s quarterly revenue of $7.34 billion.
Similarly, Apple also reported strong third-quarter earnings on Tuesday. Each notable product line of the company grew by more than 12% year on year. However, the company’s stock price fell as company officials warned investors that Apple’s revenues could suffer in the future due to a global chip shortage, which would hurt sales of iPhones and iPads.
MasterCard has shown a strong interest in blockchain technology in recent months. The company is working hard to make cryptocurrencies the dominant mode of payment in the near future. MasterCard is not only actively researching how to contribute to the ever-expanding asset class, but it is also supporting startups focused on crypto assets.
Through the company’s “Start Path” programme, emerging players are given access to MasterCard’s resources, such as a network of professionals and technology. Seven startups have joined the programme since its inception, including Domain Money and Uphold. The company’s initiative will aid in shaping the industry and ensuring consumer security and protection.
Today is a critical day for the precious metal because the Fed’s stance will set the tone for future fluctuations in gold prices. A surprising hawkish tone could send the precious metal tumbling, implying an impending rise in interest rates, reducing gold’s appeal. It would also help to boost the dollar index. However, a change in the Fed’s stance is unlikely, and thus gold prices are expected to remain stable.
Oil prices have not fluctuated significantly in recent days. The main factor that traders should keep an eye on is the global status of coronavirus cases. Investors should keep in mind that even after the United States imposed travel restrictions on Portugal and Spain due to a surge in cases, benchmark prices did not fall. Despite the increase in cases, pandemic era lockdowns are highly unlikely to occur again due to effective vaccination programmes. This would support the long-term outlook for fuel demand. On the other hand, oil supply is likely to remain tight even with the production hikes set by OPEC+.