European and Asian shares dropped on Tuesday as investors fretted about rising interest rates and the impact of US export restrictions on the world’s biggest chipmakers.
The regional Stoxx 600 fell 0.5 per cent at the open, while Germany’s Dax index dropped 0.7 per cent.
In Asia, Hong Kong’s Hang Seng index fell 1.7 per cent to its lowest point in nearly 11 years as tougher restrictions from Washington on the export of critical technology rippled across the tech sector.
Semiconductor and related technology shares have dropped sharply since Washington launched new export controls last week to restrict Beijing’s plans for technological self-sufficiency. The restrictions limit the sales of semiconductors made with US technology, unless vendors obtain an export licence.
The Philadelphia Semiconductor index lost 3.5 per cent on Monday, after China’s biggest semiconductor groups lost a combined $8.6bn in market capitalisation earlier in the day.
On Tuesday, Japanese, South Korean and Taiwanese semiconductor groups, which had been shielded from the market fallout of the new bans by a Monday holiday, all fell. Japan’s Topix closed down 1.9 per cent.
Jitters over Chinese growth add to an already difficult picture for global markets, which have been reined in for much of the year by concerns that central banks’ efforts to tame rampant inflation by raising interest rates will trigger a recession.
US consumer price index data due on Thursday will provide investors with more insight on the impact of the Federal Reserve’s rate-raising policy on rising prices. Economists polled by Reuters expect the headline figure to slip back to 8.1 per cent in the year to September, down from 8.3 per cent for the previous month.
Ahead of the data and the beginning of corporate earnings season in the US this week, the broad S&P 500 gauge closed down 0.8 per cent on Monday while the Nasdaq Composite slipped 1 per cent. Futures markets showed a continued risk-off mood on Tuesday, with contracts tracking the S&P 500 and Nasdaq 100 both down 0.8 per cent.
In government bond markets, the Bank of England widened its gilt-buying programme after a sell-off on Monday pushed up the UK’s long-term borrowing costs.
The Bank will include index-linked gilt purchases in its programme to tackle “dysfunction in this market, and the prospect of self-reinforcing ‘fire sale’ dynamics, [which] pose a material risk to UK financial stability”, it said.
Gilts made a muted reaction in early trading, with 30-year gilt yields slipping back 0.1 percentage points to 4.6 per cent. Ten-year yields fell 0.07 percentage points to 4.4 per cent, as the price of the bonds rose.
In currencies, the dollar rose 0.2 per cent against a basket of six peers, extending its 18 per cent rise so far this year. The pound slipped 0.15 per cent against the greenback to trade just above $1.10.
Additional reporting by William Langley in Hong Kong