Key facts
- European shares were expected to open lower due to anticipated Federal Reserve rate hikes and tech sector weakness.
- Nasdaq 100 futures fell 2% amid concerns over borrowing costs and AI spending.
- Traders are pricing in 50 basis points of Fed rate hikes by December.
- The 2-year Treasury yield slipped to 4.19% after hitting a four-month high.
- Major tech stocks including Alphabet, Meta, Microsoft, and Amazon.com saw sharp declines.
European shares were poised to open lower on Tuesday, mirroring global market weakness driven by expectations of aggressive interest rate hikes from the U.S. Federal Reserve and concerns over the cost of artificial intelligence-related spending amid higher borrowing costs. Nasdaq 100 futures led the decline, falling 2.25%, as investors braced for potential further tightening of monetary policy.
Traders are now anticipating a total of 50 basis points in Federal Reserve rate hikes by December, a significant increase from earlier expectations, according to CME Group's FedWatch Tool. This hawkish outlook, coupled with elevated valuations in AI-related stocks, is dampening investor sentiment. The yield on the 2-year U.S. Treasury note, sensitive to rate expectations, slipped to 4.19% after reaching a four-month high.
Major technology companies, including Alphabet, Meta, Microsoft, and Amazon.com, experienced sharp declines in their stock prices. Elon Musk's SpaceX also saw its stock drop 16% on Monday. Despite these pressures, chip stocks had advanced on Monday, with the Philadelphia SE Semiconductor Index reaching a record high, and investors await Micron's upcoming results for further insights into the memory and AI chip market.
Globally, crude oil and precious metals also faced downward pressure. In geopolitical developments, investors are closely watching the Middle East following the U.S. decision to waive sanctions on Iran for 60 days. Later in the day, market participants will focus on private surveys of business activity for June and the crucial Personal Consumption Expenditures Index report due Friday, which economists expect to show inflation at 4.1%, more than double the Fed's target.