US stocks were set to open slightly lower on Tuesday, after rising to fresh all-time highs as investors braced for a red-hot week of earnings, while Asian stocks tumbled overnight on concerns about asset bubbles and coronavirus.
Asian stocks slid overnight as Chinese short-term borrowing costs hit pre-coronavirus levels thanks to the People’s Bank of China draining liquidity from the financial system. European stocks opened higher after strong earnings from UBS.
A PBOC official said the country should stop setting GDP targets as it could lead to more debt and “future financial risks,” the South China Morning Post reported, adding to fears of a stock-market bubble.
China’s CSI 300 slid 2.01% while Hong Kong’s Hang Seng dropped 2.55%. Japan’s Nikkei 225 closed 0.96% lower. A recent rise in coronavirus cases in Hong Kong and some Chinese cities has also unnerved investors.
Stock markets around the world have soared in recent months. Optimism about the power of vaccines in stopping the spread of COVID-19, as well as fiscal stimulus have driven stocks to record highs.
But some commentators are worried by the astounding rise in some shares. For example the 260% jump in GameStop stock over the last month, which has been driven by Reddit traders, has alarmed many institutional investors.
Billionaire investor Jeremy Grantham has repeatedly called the rally a “bubble” that will burst. Yet others say stimulus and a likely economic rebound in 2021 support prices.
Investors braced themselves for a slew of big earnings on Tuesday morning. Microsoft, Verizon and Johnson & Johnson were scheduled to report, while Apple, Facebook and Tesla will release earnings this week.
“Big tech has somewhat underperformed over the past few months [but] investors are trying to ramp up their love for FAANG [Facebook, Apple, Amazon, Netflix and Google] stocks,” said Edward Moya, senior market analyst at currency firm Oanda.
The tech-heavy Nasdaq rose 0.69% on Monday to an all-time high. Moya said: “Millennials’ relentless love for Apple, Tesla, Facebook, and Amazon and mounting COVID global lockdowns are simple reasons that are powering mega-cap stocks.”
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Swiss bank UBS posted its biggest annual profit since the financial crisis, driving shares up 1.16% on the Six exchange.
The earnings helped the continent-wide Stoxx 600 rise 0.63%, despite Italian Prime Minister Giuseppe Conte preparing to resign in an attempt to reform a government during political turmoil.
Investors bought the dollar as US stock futures moved lower, with the dollar index up 0.1% to 90.48. Bond prices were only slightly lower, with the 10-year Treasury yield – which moves inversely to the price – falling 0.3 basis points to 1.043%.
Bitcoin was down 2.76% to $32,245 as it struggled to escape its recent trading range around $32,000.