Stocks
Global stocks slumped as investors sought the safety of government bonds on Friday. Weakness in financial stocks brought the FTSE 100 to a three-week low whilst 10-year German bund yields dropped to a record low.
Markets have a razor-sharp focus on falling government bond yields right now. Data showing a sluggish rise in German consumer prices has helped keep inflation expectations firmly anchored to the floor and provides another justification for the shift into government debt.
Behind the move into bond markets is a flight to safe assets ahead of central bank meetings next week. The German bund has the added safety net of being bought by the European Central Bank as part of its asset purchase program. Having narrowly avoided it last Spring, when yields fell to 0.07%, there appeared to be a general feeling in the marketplace that the time has come for a negative-yielding German 10-year bund.
The move into bonds has been to the detriment of equities this week. The financial sector is the biggest faller across European stock markets since banks and insurance companies have the most to lose from the ongoing low rates environment.
The FTSE 100 is heading for its second weekly loss, led lower on Friday by financial shares and Tesco (LON:TSCO), which announced the sale of restaurant chain Giraffe.
Financial firms Standard Chartered (LON:STAN) and Schroders (LON:SDR) felt the wrath of British investors looking to sell stocks hurt by low interest rates. Numerous asset managers are extolling the risks of the hunt for yield including former PIMCO boss Bill Gross who called the $10trn worth of negative-yielding bonds a “supernova that will explode one day”.
The announcement of the sale of Giraffe as well as its Turkish supermarket arm sent shares of Tesco lower by over 2%. The disposal of Giraffe was thought to be off the table, so the apparent change of heart suggests a level of desperation. CEO Davis Lewis is obviously still keen to add to the ‘price war chest’ as Tesco arms up to take on discounters Aldi and Lidl.
US stocks opened lower with risk-off investors preferring US treasuries as data as showed a smaller than expected fall in consumer confidence.
FX
Risk aversion swept through FX markets with the Japanese yen, Swiss franc but more importantly the US dollar all making gains.
The British pound fell for a third day, erasing the big gains made on Tuesday, leaving it flat for the week. Thursday’s tortuous televised debate which degenerated into Politician name-calling has left many investors with their head in their hands.
The Russian ruble fell after the Bank of Russian announced a well-telegraphed rate cut. Pressures on the Russian economy have eased since oil prices bottomed this year.
Commodities
Oil prices dipped for a second day with US crude prices falling back below $50 per barrel as strength of the US dollar undercut the supply-concerns out of Nigeria.
A general taste for havens and preparation for next week’s Fed meeting, in which it is expected interest rates will be left unchanged set up gold for its best two-week return since February.
DISCLAIMER: CMC Markets is an execution only provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed.
No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.