The current sell-off may end up emboldening the bulls, if the last tech bubble is a guide


The bubble isn’t burst yet.


Justin Edmonds/Getty Images

Traders at the moment seem to have as much patience with tech stocks as Kansas City Chiefs fans do for a moment of unity.

Thursday was the fourth ugly finish in five sessions, with the Nasdaq Composite
COMP,
-1.99%

skidding 2%, and the other major indexes backtracking as well.

Andrea Cicione, head of strategy at independent investment research firm TS Lombard, said excessive leverage in the market really began in earnest in July. Cicione added that was occurring in U.S. stocks wasn’t happening anywhere else in the world.

And while he’s seeing signs of a bubble, he thinks if the selling doesn’t intensify, the bubble may reflate soon.

“The leverage accumulation so far may not be enough to burst the bubble just yet,” he writes. “If the recent selloff does not intensify further, the whole episode may end up simply emboldening the bulls to buy the dip and take even more risk.”

Between 1997 and 1998, the Nasdaq experienced three sell-offs of at least 17%, only to emerge stronger and rise four-fold to the 2000 peak. “Leverage is a key characteristic of all bubbles, and almost invariably it is the mechanism that leads to their collapse. But there may not have been enough leverage for the dot-com 2.0 bubble to burst just yet,” he says.

The reason leverage is important in bursting bubbles is because it uniquely can lead to forced unwinding. “When faced with margin calls they cannot meet, investors may have to liquidate positions against their will. The resulting fall in prices can instil doubts in the mind of others, persuading them to sell,” he said.

The buzz

Consumer price data for August is due at 8:30 a.m. Eastern.

The quarterly services survey and August budget deficit are also due for release. The Congressional Budget Office, which typically gets the budget picture pretty close to the mark, estimated the August deficit was $198 billion, and said the September-ending fiscal year gap will be the highest relative to the economy since 1945.

Database software giant Oracle
ORCL,
+0.66%

topped earnings and revenue expectations, helped by revenue from key client Zoom Video Communications
ZM,
-1.32%
.
Oracle also declined to discuss whether it will buy the U.S. operations of social-media company TikTok, as U.S. President Donald Trump said Thursday there will be no extension of the Sept. 15 deadline for it to be sold to a U.S. company or shut.

Peloton Interactive
PTON,
-3.75%
,
the exercise bicycle company, reported stronger-than-forecast fiscal fourth-quarter earnings and revenue, with its current year outlook also well ahead of estimates.

Jean-Sébastien Jacques, the chief executive of mining giant Rio Tinto
RIO,
-1.67%
,
announced he will resign in March following the controversy over the firm blowing up ancient caves while excavating for iron ore.

Thursday marked the first day since spring when new coronavirus cases in the European Union and the U.K. exceeded the United States.

The market

U.S. stock futures
ES00,
+0.65%

NQ00,
+0.64%

were stronger.

Gold futures
GCZ20,
-0.46%

fell while oil futures
CL.1,
+0.21%

edged higher.

The British pound
GBPUSD,
+0.18%

continues to reel from its more combative stance taken against the European Union in trade negotiations.

The chart

This incredible UBS illustration of Tesla
TSLA,
+1.38%

shows how shares have performed compared to other tech giants since joining the $100 billion market cap club. It took Apple
AAPL,
-3.26%
,
Alphabet
GOOGL,
-1.36%

and Facebook
FB,
-2.05%

between 4 to 11 years to achieve what Tesla did in three quarters. UBS increased its Tesla price target to $325 from $160 ahead of the company’s battery day presentation.

Random reads

Here’s the 2010 memo from a venture capital firm on an investment which valued retail software maker Shopify at $25 million. Shopify
SHOP,
-1.59%

is now worth $114 billion.

China said its U.K. ambassador’s Twitter account was hacked — after a steamy post was liked.

An experimental treatment kept mice strong in space, one that could have uses back on Earth.

Need to Know starts early and is updated until the opening bell, but sign up here to get it delivered once to your email box. The emailed version will be sent out at about 7:30 a.m. Eastern.



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After U.S. tech gains, European stocks pause as ECB decision awaits


(FILES) This file photo taken on March 12, 2020 shows flags of the European Union fluttering in front of the headquarters of the European Central Bank (ECB) in Frankfurt am Main, western Germany.


daniel roland/Agence France-Presse/Getty Images

European stocks were steady on Thursday, ahead of a European Central Bank decision and press conference in which expectations are for the central bank to raise concerns about the rise of the euro.

Up 1.6% on Wednesday, the Stoxx Europe 600
SXXP,
+0.16%

was little moved at 369.70.

U.S. stocks, particularly in the tech sector, broke a losing run on Wednesday, as the Nasdaq Composite
COMP,
+2.70%

rallied 2.7%. U.S. stock futures
ES00,
+0.05%

were modestly higher Thursday.

The ECB decision is due at 1:45 p.m. Central European time (7:45 a.m. Eastern), though analysts are focusing on the press conference with President Christine Lagarde at 2:30 p.m.

Attention also is in London, where an emergency meeting is being called on the U.K. decision to unilaterally amend its withdrawal agreement. Bloomberg News reported the European Union was considering a lawsuit.

Wm Morrison Supermarkets
MRW,
-3.51%

slumped 3.7% after reporting a 25% slump in first-half adjusted pretax profits, with the company flagging higher costs and reduced consumer demand for fuel. “Some traders will be wondering if Morrisons can’t post a rise in profit when a pandemic has driven up demand, when will they register a rise in earnings,” said David Madden, market analyst at CMC Markets UK.

Chemicals group Akzo Nobel
AKZA,
+3.47%

rose 4% as the company said revenue for the third quarter will be close to last year’s levels. It reported strong decorative paint demand in Europe and South America.

Games Workshop
GAW,
+13.92%
,
which makes miniature wartime figures, jumped 13% after saying its performance for the quarter ending Aug. 30 was ahead of its expectation



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European stocks rise, diverging from U.S. tech fears


A worker assembles VW ID.3 electric cars at the Volkswagen factory on July 31, 2020 in Zwickau, Germany.


Jens Schlueter/Getty Images

European stocks advanced Monday, diverging from the U.S. after a rough week in markets.

Down 1.9% last week, the Stoxx Europe 600
SXXP,
+1.10%

rose 0.8%, with automakers including Renault
RNO,
+2.80%

and Volkswagen
VOW3,
+3.14%

advancing.

The German DAX
DAX,
+1.29%
,
French CAC 40
PX1,
+1.17%

and U.K. FTSE 100
UKX,
+1.36%

also advanced.

U.S. stock futures, which will still trade despite U.S. markets being shut for the Labor Day holiday, were lower, particularly for the tech-oriented Nasdaq 100
NQ00,
-0.94%
.

Last week the tech-dominated Nasdaq Composite
COMP,
-1.26%

lost 3.2%, its worst decline since the period ending March 20, and first drop after five consecutive gains.

SoftBank Group
9984,
-7.15%

shares dropped over 7% in Tokyo on Monday after The Wall Street Journal reported the Japanese investment group bought $4 billion worth of options tied to around $50 billion worth of individual tech stocks.

“There was no specific trigger to the selloff but after extreme bullishness driven by monetary and fiscal policies, stock prices reached levels that could no longer be justified by fundamentals,” said Hussein Sayed, chief market strategist at FXTM. “Liquidity and low interest rates alone cannot be the solution to everything, so it’s essential to see continued improvement in economic data and an end to the pandemic for sustainable upside in risk assets. ”

Germany reported a 1.2% rise in industrial production for July, which was a slower than forecast rise.

The British pound
GBPUSD,
-0.67%

weakened after the Financial Times reported the U.K. was working on legislation to override parts of the Brexit withdrawal agreement. The Sunday Express separately reported a dossier is being considered by Downing Street that would seek to limit access for European Union companies seeking to raise money in London. Talks on a post-Brexit U.K.-European Union trade deal are due to re-start Tuesday.

Associated British Foods
ABF,
+3.40%

rose 4% after saying trading in the fourth quarter ending Sept. 12 in both its food businesses and Primark exceeded expectations.



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European stocks continue recovery as banks get left behind


Santander bank logo is seen on September 2, 2020 in Warsaw, Poland.


Aleksander Kalka/Zuma Press

European stocks extended gains on Thursday, as data shows the economic recovery grinds ahead, with signs afoot of potentially more stimulus.

Up 1.7% on Wednesday and 33% from its March lows, the Stoxx Europe 600
SXXP,
+1.17%

rose 1%.

The French CAC 40
PX1,
+1.91%

rose 1.4%, as the German DAX
DAX,
+1.59%

and U.K. FTSE 100
UKX,
+0.86%

also gained ground.

The gains came after relief from the breakneck rise of the euro
EURUSD,
-0.29%
,
and the British pound
GBPUSD,
-0.43%
,
against the dollar. Comments this week from European Central Bank chief economist Philip Lane that the euro/dollar rate does matter has raised expectations ahead of its meeting next week.

But the backdrop for the advance is the rally on Wall Street, which on Wednesday sent the S&P 500
SPX,
+1.53%

to its 22nd record high and the Nasdaq Composite
COMP,
+0.97%

to its 43rd record. In the U.S., it wasn’t tech stocks but utilities and materials companies that paced the gains. Reports of new talks over the stalled stimulus bill have fanned expectations of a deal.

Meanwhile a host of data from the service sector, on both sides of the Atlantic, should show the economy continuing to move toward its pre-pandemic levels.

The popular Euro Stoxx 50
SX5E,
+1.68%

will be reshuffled, with banks Societe Generale
GLE,
+4.22%

and BBVA
BBVA,
+4.57%

headlining the five getting removed, and Banco Santander
SAN,
+4.53%

is getting axed from the Stoxx Europe 50. European banks, already struggling with years of negative interest rates and little growth, took a cumulative 33 billion euros of loan-loan provisions in the second quarter, according to Deutsche Bank. The Euro Stoxx bank index
SX7E,
+3.40%

has slumped 37% this year.

Of stocks on the move on Thursday, Siemens Healthineers
SHL,
-3.27%

fell 5% after saying it sold 2.73 billion euros of new shares to institutional investors, to help finance its purchase of Varian Medical Systems.

Melrose Industries
MRO,
+11.44%

jumped 8% after the loss-making U.K. company said trading over the summer was at the higher end of its expectations. Like many companies, it said it wouldn’t pay a dividend.



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Euro at two-year high vs. the dollar as European stocks and U.S. futures gain


A passenger wearing a face mask is seen at the main train station in Frankfurt, Germany, on Aug. 29, 2020.


Kevin Voigt/Zuma Press

The euro reached a two-year high on Tuesday and European stocks rose, as traders balanced growing signs the recovery is continuing with concerns governments are withdrawing aid.

The euro
EURUSD,
+0.25%

traded as high as $1.1999 vs. $1.1936 on Monday, as the shared currency reached the strongest level since May 2018. The gains for the euro come amid the backdrop of an aggressive U.S. Federal Reserve, which last week said it would begin an average inflation targeting program, though it left implementation vague.

The U.K. FTSE 100
UKX,
-1.12%

fell 1.2% after a three-day break. The German DAX
DAX,
+0.66%

and the French CAC 40
PX1,
+0.11%

each advanced, as did the Stoxx Europe 600
SXXP,
+0.14%
.

After a 223-point retreat for the Dow industrials
DJIA,
-0.78%

on Monday, U.S. stock futures
YM00,
+0.07%

pointed higher.

The German government upwardly revised its 2020 estimate of a contraction, now seeing a 5.8% fall versus the earlier projection for a 6.3% contraction in 2020. The final readings of the manufacturing purchasing managers index for August showed a second month of improving conditions, while consumer prices were negative.

U.S. Treasury Secretary Steven Mnuchin accused Democratic lawmakers of not wanting to negotiate in good faith, at a time when unemployed people in many U.S. states have lost federal unemployment benefits. The federal government is due to shut down on Oct. 1 in the absence of new funding agreements.

Reports over the weekend in the U.K. suggested the Treasury was looking to increase taxes to pay for coronavirus relief.

German commercial real estate company Aroundtown
AT1,
+3.49%

rose, after saying it would buy back up to €1 billion of its own stock as it is in talks to sell over €1 billion of assets.

Old Mutual
OMU,
-5.65%

slumped, as the Anglo-South African insurer reported a first-half loss and suspended its dividend.



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