The Treasury is keeping a nervous watch on the Asian markets this morning as a US tech rout threatens to spill over into London. The sell-off in American technology stocks, sparked by disappointing earnings from a handful of Big Tech firms, has sent shockwaves through global equity markets. Tokyo’s Nikkei slumped 3 per cent overnight, while Hong Kong’s Hang Seng fell by 2.5 per cent. The FTSE 100 is expected to open sharply lower, with futures pointing to a drop of over 1 per cent.
Chancellor of the Exchequer, Rachel Reeves, is said to be ‘deeply concerned’ about the potential impact on UK pension funds and retail investors, many of whom have piled into US tech stocks in recent years. A Treasury source confirmed that officials are ‘monitoring the situation closely’ and are in contact with the Bank of England and the Financial Conduct Authority.
The rout began on Wall Street after a string of disappointing corporate updates. Apple missed revenue forecasts, Alphabet’s ad revenue fell short, and Microsoft’s cloud growth slowed. Investors, already jittery about high valuations and rising interest rates, took fright and fled. The tech-heavy Nasdaq Composite suffered its worst one-day drop since 2022, losing 3.6 per cent. The S&P 500 fell 2.1 per cent.
The question now is whether this is a healthy correction or the start of something more sinister. For months, the market has been sustained by a narrow band of tech behemoths. When those pillars wobble, the whole edifice creaks. The knock-on effect for London is twofold. First, there is the direct impact on UK-listed tech stocks, which have already been underperforming their US peers. Second, and more worrying, is the potential for a broader risk-off move that could see capital flee equities entirely.
Gilt yields have already started to rise as investors seek safety in government bonds. The 10-year yield edged up 5 basis points to 4.12 per cent in early trading. A sharp spike in yields would be bad news for Chancellor Reeves, who is already struggling to meet her fiscal rules. Higher borrowing costs could force her to cut spending or raise taxes later this year.
The Bank of England, meanwhile, faces a dilemma. If the sell-off deepens, it may be tempted to signal a pause in its tightening cycle to calm markets. But inflation, though falling, remains stubbornly above the 2 per cent target. The Bank’s Monetary Policy Committee is due to meet next week, and this turbulence could complicate their deliberations.
For the average investor, the message is clear: diversify. The cult of US tech has been a lucrative one, but it is not without risk. Those who have bet the farm on Apple, Amazon, and their ilk may be feeling queasy today. The Treasury’s concern is that a sudden loss of confidence could trigger a broader sell-off, hitting UK pension pots and household wealth.
There are echoes here of the 2020 Covid crash, when markets seized up and central banks were forced to intervene. But the circumstances are different. Then, the shock was external and temporary. Today, the rot is internal and structural: overvalued stocks, slowing growth, and a central bank that is still tightening. The Treasury’s monitoring is well and good, but unless they have a plan beyond ‘hope for the best’, this could get ugly.
In the short term, expect volatility. The Footsie may recover some losses by the close, but the damage to sentiment is done. Investors will be watching the US open closely. If the selling resumes there, London will be in for a rough ride. The Chancellor’s best hope is that this is a garden-variety correction, not a systemic crisis. But in this market, hope is not a strategy.
