UK and Europe
European markets fell on Tuesday as data showed European service sector activity cooled in March and IMF chief Christine Lagarde warned of rising risks to the global economy.
IMF managing director Christine Lagarde has said the global economy is not in a crisis but that the recovery is too slow and risks to its durability are increasing. In her speech, Lagarde outlined a number of reforms that could be undertaken by the US and European countries to improve economic growth. Her downbeat comments are probably to soften up markets for downgrades in IMF forecasts next week.
A three-week low in the price of oil goes someway to explaining deteriorating market sentiment, although the pullback in equities has not been as severe as the one in oil.
Some heavy declines in industrial metal and oil prices over the past three days is taking its toll on the UK-listed mining companies, with basic resources the worst performing sector on the FTSE 100.
The shares of Tesco’s (LON:TSCO) and Morrisons (LON:MRW) dropped after the latest Kantar market data showed sales continued to decline. Shares of Sainsbury's (LON:SBRY) bucked the trend as it continues to outperform its “big four” rivals, reporting a rise in monthly sales.
The panama papers have put global banks in the spotlight. Barclays (LON:BARC), RBS (LON:RBS), Lloyds (LON:LLOY) and HSBC (LON:HSBA) all saw losses in excess of 2% during the day. The banks may turn out to be eventual beneficiaries from funds moving back onshore but trust in the sector has hit a new low.
US
US markets opened lower led by the financial sector as US banks continue to drop alongside those in Europe in the wake of the Panama papers offshore banking revelations. Disappointing production numbers from electric car-maker Tesla (NASDAQ:TSLA) drove the stock lower, dragging on the wider tech sector.
Shares of Irish-headquartered pharmaceutical giant Allergan (NYSE:AGN) nosedived over 20% after the US Treasury released new regulations that might discourage tax inversion deals, potentially scuppering its deal with Pfizer (NYSE:PFE). The Treasury’s new rules are aimed at making “earnings stripping”, “cherry-picking” and “stuffing” harder, activities that have been used to make tax inversion deals work. There is still no law to block tax inversions outright but there are now a lot more hoops companies have to jump through to make them work.
FX
The unraveling of central bank policy was evident in FX markets on Tuesday as the euro and yen continue to gain ground. The US dollar was mostly stronger, supported by an a bigger than expected pickup in the service sector during March with the ISM non-manufacturing PMI rising to 54.5 from 53.4.
The euro and the pound fell against the dollar after disappointing services PMIs, which dropped across the Eurozone and the UK with the terror attacks in Belgium seemingly hitting confidence especially hard in France. Spain was one of the few bright spots, reversing three months of declines. In addition, German factory orders unexpectedly fell to a six-month low.
The euro made a fresh 17-month high against the British pound. Fears of a British exit from the Eurozone have been compounded by a slowdown in UK service sector data. EUR/GBP has topped 0.80 for a second day but the round number could prove resistance.
The Japanese yen hit a new high for the year against the dollar and its strongest since October 2014. Safe-haven flows are proving increasingly problematic for the Bank of Japan who were rumoured to be “checking rates” on Tuesday in an unsuccessful attempt to stabilise the yen.
Commodities
A flight to safety benefited precious metals with gold and silver both gaining as much as 1.5% despite a strengthening of the dollar. Having failed twice in the last week to drop below $1210 per oz, gold could be on the verge of another run higher if equity market sentiment continues to deteriorate. .
The price of oil chopped between gains and losses as traders mulled the chance of an agreement to freeze production at the upcoming meeting in Doha. The Kuwait oil minister saying that “all signs” point to agreement on an output freeze at the meeting of producers in Doha must have meant all the signs not written in Persian. Iran, one of the world’s largest producer when at full capacity, has shown a determination not to freeze production and the Saudi’s appear unwilling to take any action without Iran.
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