The FTSE 100 has fallen lower by around 40 points today, with the index on track for a second successive day of notable declines. The leading UK stock benchmark had been outperforming its continental and American peers in the early part of the week but it appears that a souring of global risk sentiment is finally weighing on shares in London. Also contributing to the declines is recent gains in the pound, with sterling this morning rising to its highest level of the month against the US dollar and its highest since February against the Euro.
Trump predictably unpredictable
As US President Donald Trump approaches three months in office, the mountain of evidence suggesting that he doesn’t have a clearly defined strategy and is susceptible to a change of tack on a dime continues to grow. The recent actions in Syria are a clear contravention of his views expressed through a series of tweets aimed at the prior administration in 2013, during which he stated: “to our foolish leader, do not attack Syria - if you do many very bad things will happen & from that fight the US gets nothing”. The irony of this, considering his recent actions, is clearly lost on Mr. Trump now that he occupies the Oval Office. US-Russia relations continue to deteriorate as the Kremlin must surely be starting to regret their open joy expressed at Trump’s unexpected victory as the two nations’ relationship threatens to grow increasingly hostile.
Then there’s North Korea - the latest targets of Trump, who appears to be ceding ground to China on trade terms in the hope that it will support his opposition to the regime of Kim Jong-un. It seems that geopolitical tensions are rising almost daily, especially when we take into account the terror attacks in Sweden and Germany, as well as the imminent French elections which have the capacity to take the markets by surprise.
Safe haven flows a precursor to stock market correction?
The impact of all the previously discussed is quite visible in several markets with safe havens such as Gold and the Japanese Yen rising to levels not seen since around the time of the US election. However, so far stock markets have remained resilient with benchmarks in Frankfurt, Paris, London and New York remaining close to their 12-month highs. The Nikkei 225 has fallen fairly sharply by around 500 points this week to trade at its lowest level since November and whilst this can be explained away to a certain extent by the currency impact of a rise in the Yen, the reason for the Yen appreciation isn’t limited to Japanese domestic risks. From a technical point of view both the Dax and S&P500 are probing some potentially key support and given the run up seen in the past six months, it wouldn’t take a major correction for a significant decline as we approach a seasonally weaker period for equities, which is often characterised by the expression “Sell in May and go away.”