Western stocks fall as oil tops $100 and tech burns cash
A surge in crude prices above $100 a barrel and alarming cash burn at major technology companies triggered a heavy selloff in European and U.S. equities, sending bond yields to multi-year highs.
European and U.S. equities suffered sharp losses on Thursday as markets confronted a toxic combination of resurgent commodity inflation and crumbling profitability in the technology sector. The S&P 500 fell 1.2 per cent while the Nasdaq dropped 2.2 per cent, with European indices down 1.3 per cent. The declines contrasted with gains in Asian markets, where South Korea's Kospi rose 4 per cent and Japan added 0.5 per cent.
Brent crude surged past $100 and WTI exceeded $90, jumping 6 to 7 per cent on the day and 40 per cent year-over-year. The spike followed Donald Trump's vow to punish Iran for Houthi attacks in the Red Sea, exacerbating a broader energy crisis that has pushed European natural gas prices up 60 per cent in a month. The inflationary impulse was reinforced by U.S. initial jobless claims falling to 187,000, the lowest level since 1969.
Government bonds bore the brunt of the reflationary panic. The 30-year U.S. real yield nudged 3 per cent, its highest level since 2008, following an ugly 10-year Treasury Inflation Protected Securities auction. Yields on 2-year and 10-year U.S. Treasuries hit 18-month highs, while Germany's 2-year yield reached a two-year peak. Rates traders now price in 60 basis points of Federal Reserve hikes by April.
The market upheaval exposed deepening financial fractures in the technology sector. Alphabet reported negative free cash flow in the first quarter for the first time since its public listing over two decades ago, while Tesla turned negative for the first time in two years. Faced with an industry-wide artificial intelligence investment wave expected to exceed $700 billion this year, tech giants are increasingly relying on debt and equity issuance rather than internal cash generation.
"Mag 7" shares and consumer discretionary stocks fell 5 per cent, marking their worst day since April of the previous year. Tesla plunged 15 per cent, T-Mobile lost 11 per cent, and Alphabet dropped 7 per cent. Capital rotated into industrial and defense names, with Lockheed Martin gaining 10 per cent, while Intel rallied 12 per cent in after-hours trading.
The European Central Bank held rates steady but laid the groundwork for a September increase. President Christine Lagarde noted that a move was discussed and warned the full impact of the second oil shock is not yet visible. Traders now price a 70 per cent probability of a September hike, anticipating roughly 75 basis points of tightening over the coming year—a prospect that raises serious doubts about the resilience of sluggish euro zone growth. Meanwhile, the dollar surged toward 164 yen, a 40-year high, while the euro fell to a three-week low.
