GLOBAL MARKETS-Stocks hit by Fed rate reality check; oil slips

Global stocks plummeted on Tuesday, led by technology declines, as investors anticipate aggressive Federal Reserve action to combat inflation, despite a 16% drop in oil prices this month.

Global stocks fell ​on Tuesday, led by broad-based declines in technology stocks, as ‌investors expect ​the Federal Reserve to take more aggressive action to tackle inflation, even after a 16% drop in oil prices this month. The STOXX 600 fell 1.2%, 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. Futures on the Nasdaq were down more than 2.5%, suggesting Monday's 1.3% slide might extend into a second day. Shares of SpaceX on Monday lost nearly 17% after the firm tapped the bond market following its blockbuster initial public offering earlier this month, while the likes of Alphabet , Meta Platforms ‌and Microsoft also tumbled.

S&P 500 e-mini futures were down 1.5%. "These are far from dull markets," said Chris Weston, head of research at Pepperstone Group in Melbourne. "The former generals of ‌the market appear to have lost momentum and investors are rotating into other areas of the market that are more defensive, less AI-focused and offer more predictable cash flows." Brent crude futures edged below $76 a barrel for the first time since early March on Tuesday, as the number of vessels transiting through the Strait of Hormuz continued to build and oil prices in the physical market are almost back to pre-war levels. A drop in oil would ⁠ordinarily give stocks ​a boost, but investors are now focussed 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 point in 16 months to trade at around 4.188%, while longer-dated yields have also risen sharply.

"The adjustment higher in ​U.S. 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. Much of that strength has come at the expense of the ⁠Japanese yen, ​which on Tuesday was flat at 161.47 versus the dollar, having neared 40-year lows in a volatile session the day before. Japanese Finance Minister Satsuki Katayama said on Tuesday she held an online meeting with U.S. 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 $1.3215. 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 U.S. rate rises this year, gold came under pressure, falling 2% to $4,100 an ounce. In cryptocurrency markets, bitcoin fell 3.1% to below $63,000, ‌while ether dropped nearly 5% ‌to $1,650.