A Sea of Red As FTSE Dives Over 1%; Pound Comes Close to $1.33
Renewed fears over a potential trade war with China, in addition to concerns that OPEC could ease the self-imposed production cut in oil, sent the FTSE tumbling on Wednesday. Whilst the FTSE shed 1.3%, it was faring slightly better than its European peers thanks to the support of a significantly weaker pound.
Commodity stocks dominated the lower reaches of the FTSE; miners, which are particularly sensitive to the health of the Chinese economy, were hit by concerns that a trade deal between the US and China may not ever be achieved, meaning trade tariffs and a potential trade war were suddenly, once again, very probable outcomes.
Oil dives on relaxation of production cut rumours
Oil majors were also leading the declines, tracing the 1.3% fall in oil on rumours that OPEC is considering relaxing production cuts. The shortages in production from Venezuela and a potential loss in production from Iran, could force OPEC’s hand to ease production cuts as soon as next month, considerably earlier than what the markets originally had in mind. This rumour, whilst still unsubstantiated will be enough to prevent the price of oil extending much higher for now, even if the EIA confirms the 1.3 million drop in US inventories reported by the API on Tuesday.
Marks & Spencer pre- tax profits drop 62%
On a positive note Marks and Spencer (LON:MKS) topped the FTSE leader board jumping 6.2% and paring losses from the previous session, despite pre-tax profits dropping 62%.
Profits have been wiped out by the costs associated to closing 100 stores as it retreats from the High Street. The turnaround story at Marks is proving to be slow, its not clear when the restructuring will start to translate through into increased profitability, furthermore there are fears that Chairman Archie Norman is just not doing enough. Investors have been steadily selling out of the stock, with the share price down a quarter over the past 12 months. With Marks an Spencer potentially set to leave the FTSE at the next reshuffle, there is a growing sense of too little too late for the one time King of the High Street.
GBP/USD to $1.33
Inflation printing lower than forecast for both headline and core readings sent the falling. Headline CPI printed at 2.4%, in April, lower than the 2.5% forecast, whilst core inflation dropped to just 2.1%, down from 2.3% in March and below the 2.2% forecast.
With lower inflation falling, optimism of an August rate hike evaporated. Whilst a weaker level of inflation is beneficial for the consumer as wages grow faster than prices increase potentially boosting domestic inflation over the longer term; the reality is the BoE are less likely to raise rates on falling inflation, sending sterling tumbling towards $1.33.
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