European stocks tumbled on Tuesday as investor concerns over Brexit, the US – China trade dispute and the health of the US economy weighed on risk appetite.
The FTSE was the best of a bad bunch in Europe down 0.4% compared to the 1% sell on the Dax; but that was only owing to the pound tanking, which offered support to the multinational stocks listed on the UK index. Brexit vulnerable stocks such as the house builders and domestic focused banks dominated the lower reaches of the FTSE. LSE took the crown for the largest faller, dropping over 4% after HKSE withdrew its £32 billion bid. Even though investors knew it was a nonstarter from the word go, the fact that HKSE has walked away and can’t return with another bid for 6 months has left investors noticeably disappointed.
The pound is plunging lower and looks to break through $1.22 as hopes of the EU and the UK reaching a Brexit deal fade. The most recent reports from the BBC’s political editor Laura Kuenssberg suggest that talks are in fact close to breaking down suggesting there is too much distance between them for a deal to be struck.
This is not necessarily a great surprise given the EU’s lukewarm reaction to Boris Johnson’s final Brexit offer. However, it appears to be the straw that broke the camel’s back and is sending sterling sharply lower versus both the euro and the dollar.
Trade & Fed Chair Powell In Focus
With trade negotiations set to restart in Washington on Thursday, investors have been jumping from headline to headline in an attempt to gauge the chances of a trade deal being achieved. The prospects of any serious progress are slim. There could be scope for a trade truce but a game changing trade deal looks highly unlikely from here.
Whilst investors mulled over the prospect of the trade dispute dragging on US economic data continued to disappoint. US PPI and small business optimism both surprised to the downsides. Evidence is mounting that the US economy is cooling rather than sliding into recession. Investors will look towards Fed Chair Powell when he speaks later today on monetary policy for clues as to what the Fed intends to do in light of last week's distinctly average data.
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