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Global stock markets set for second day of sharp losses

Global stock markets

London’s FTSE, Frankfurt’s DAX and the CAC 40 in Paris all fell nearly 2%, while Japan’s Nikkei and Hong Kong’s Hang Seng both closed down 3%

Global stock markets were set for a second day of sharp losses on Tuesday as the combination of inflation worries and an anti-monopoly drive in China sent the world’s mightiest tech giants tumbling.

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 fell nearly 2%.

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%.

With talk of tighter regulation from Beijing, Chinese tech heavyweights Baidu, Alibaba Tencent, collectively dubbed the BATs, all fell more than 3%. Food delivery major Meituan tumbled 9.8%, leaving its value $30 billion lower in a week.

It had followed a 3.6% slump in the U.S. FANG+ index of megacap tech firms on Monday. Electric car maker Tesla had slipped 6.4% and Google declined 2.5%.

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, he said.

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 lockdowns.

U.S. breakeven rates, which factor in inflation, have scaled multi-year peaks. Most euro zone bond yields inched back up on Tuesday while a market gauge of long-term inflation expectations was nearing its highest in more than 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 U.S. 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.

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

U.S. crude slipped 0.66% to $64.49 a barrel. Brent crude dropped to $67.84 per barrel.

Metal markets saw copper prices rising again. They were last at $10,470 a tonne having reached a record high $10,747.50 the previous session. Iron ore had settled too after surging 7% on Monday.

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