A look at the day ahead from Julien Ponthus.
One thing markets are good at is swiftly changing price tags. Beijing's broad regulatory clampdown on tech has forced investors to quickly reassess the risk premium they are willing to pay for both the sector and the country and the answer is quite unambiguous: much less!
The embattled Hang Seng Tech Index sank to its lowest level since the index's creation in July 2020 and is down about 40% from its February high.
At the same time on Wall Street, Google parent Alphabet Microsoft, and Apple all reported record quarterly earnings and while their respective share prices wobbled slightly, they stand close to record highs.
Investors did have a moment of doubt on big U.S. tech between February and March when the reflation trade pushed the yield on 10-year Treasuries close to 1.8%, denting the premium they were ready to pay for growth stocks.
But at this morning's 1.24%, the reflation trade seems pretty much on hold and the U.S. 10-year yield isn't much of a threat to the appeal of the stock market.
European bourses look to open higher though that cautious optimism doesn't translate to the other side of the Atlantic where stocks futures are red.
Investors will pay close attention later today when Jerome Powell tells them just how united the Federal Open Market Committee is about the transitory nature of inflation and when a good time to start tapering bond buying might be.
How much this will move markets and how prescient this will look when the U.S. PCE core price index is published on Friday is anyone's guess but in the meantime, there's plenty of inflation gauges to look at starting with the second-quarter earnings season.
Britain's Reckitt, owner of big brands such as Durex, lost over 8% on Tuesday, its worst session since 2003 with investors wondering whether it will be able to maintain margins if inflation keeps on rising.
One thing investors love about consumer staples is their ability to raise prices on consumers' favourite brands, protect their margins and continue to deliver stable sweet bond proxy dividend. Not much so when they can't.
For similar reasons, consumer group Unilever got hit when it published its results on July 22.
On a lot of fund managers' mind is a repetition of 1993's "Marlboro Friday", when Philip Morris' decision to cut prices to defend its market share triggered a sell-off across consumer staples.
No doubt will investors closely watch how other big consumer groups like Nestle on Thursday are dealing with labour, transportation and raw material costs.
Key developments that should provide more direction to markets on Wednesday:
-- German consumer morale steady heading into August
-- Deutsche Bank's second-quarter net profit tops estimates
-- Wizz Air sees summer capacity close to pre-pandemic levels
-- Capgemini raises 2021 targets on booming tech demand
-- Adecco Group to buy AKKA Technologies in $2.4 bln deal
-- U.S. Fed meeting and presser
-- U.S. inventories
-- U.S. earnings: Pfizer, Bristol Mayers-squibb, CME, McDonalds, Boeing, Ford, Qualcomm. Raymond James, Facebook
Graphic: Reckitt shares suffer biggest drop since 2003 - https://fingfx.thomsonreuters.com/gfx/mkt/klvykenewvg/Pasted%20image%201627380911966.png
(Reporting by Julien Ponthus, editing by Karin Strohecker)