The FTSE 100 has been hit with a wave of selling this morning with the market off by more than 70 points at the time of writing. The pound is trading fairly mixed on the day but overall it’s been a week of declines for sterling with commodity currencies such as the Australian Dollar and Canadian dollar the biggest risers against the GBP.
Another August wobble for stocks
It has long been thought true that the summer months see a lull in activity in stock markets as traders and investors in the Northern hemisphere take holidays causing volumes to dwindle. This observation gave rise to the sell-in-May adage but more recently the summer has seen some of the largest moves of the year. In August 2015 fears surrounding the Chinese economy wreaked havoc throughout the markets and there were several wild swings - possible exacerbated by the lower volumes and the absence of more senior and experienced traders. Whilst we’re not quite there yet, several signs in the past week or so suggest that we could have a deeper correction before the month is out.
Growing reasons for further declines
Last week equities tumbled on the escalating tensions between the US and North Korea and after a recovery in the first three sessions of this week ,the last two have seen a sense of weakness return. Thursday’s trade saw markets rattled by rumours that Gary Cohn, the top economic advisor to the White House, had tendered his resignation and whilst these ultimately proved unfounded, stocks failed to recover the sell-off before the close. Terrorist attacks in Barcelona and Cambrils late yesterday afternoon and overnight could be attributed as reasons for the selling seen throughout Europe this morning, but if truth be told the weakness in stocks was already apparent before these atrocities occurred.
Dog days of summer almost over
After the near Euphoric reaction in stocks on the continent to Macron’s victory the markets have pulled back considerably with the Eurostoxx now trading back near pre-election levels. Another impact of Macron’s success was a surge in the Euro to it highest level against the US dollar in two and a half years and this has had a direct negative impact on exporting firms throughout Europe. Equities are currently looking rather precarious and whilst economic data remains robust in general it wouldn’t take much more downside to inflict some pretty serious technical damage to the charts and given the recent propensity for summer sell-offs a deeper correction before the month is out wouldn’t come as too much of a surprise.