Stocks
European markets slumped for a second day on Thursday, this time joined by the FTSE 100, weighed down by a drop in the basic resource sector. Investors were fleeing risky assets like stocks preferring traditional havens like government debt, gold and the Japanese yen.
The European Central Bank’s purchase of corporate debt has driven yields lower across the bond spectrum. Jitters over a possible Brexit are adding to the lure of the UK’s “safest” asset. British investors clambering for the safety of government debt have taken 10-year gilt yields to a record low.
Markets were backtracking on Thursday after two high-profile warnings about the future of the European economy from the ECB’s Mario Draghi and renowned investor George Soros. Mario Draghi warned of lasting damage without structural reforms whilst George Soros warned that a Brexit vote would cause the dissolution of the European Union. Neither Draghi nor Soros believe in imminent disaster but the comments are a sober reminder of the risks to health of the European economy.
A retreat in oil prices from a fresh 2016 peak weighed on the energy sector but was also detrimental to overall market sentiment. The oil price is proving to be the dominant factor for the UK’s listed mining shares with investors dismissing a moderation of deflation at the factory gate in China and Glencore (LON:GLEN) successfully offloading more of its agricultural division.
Telecoms giants Vodafone (LON:VOD) and Sky (LON:SKYB) were either end of the UK benchmark on Thursday after the two companies’ New Zealand entities agreed to merge.
Housebuilders Taylor Wimpey (LON:TW) and Berkeley Group (LON:BKGH) were out of favour after a warning from surveyors that house prices are set to see their first decline since 2012. RICS House price balance index fell to 19% from 39% previously. The fallout came despite homebuilder Bellway (LON:BWY) revealing house price completions for the year are expected to rise by at least 10% thanks to rising demand.
US stocks opened with modest losses the day following the first close above 18,000 for the Dow Jones Industrial Average since April.
FX
The New Zealand dollar was top FX riser following the RBNZ’s decision to keep interest rates on hold. The sharp appreciation of the currency after the decision to keep policy on hold matches the moves seen in the Australian dollar following the same decision from the RBA.
The British pound slipped back against the dollar but rose against the euro after data showed a lower trade deficit in April and a high profile MP defected in the Brexit debate from the Leave to the Remain campaign.
Lower than expected US unemployment claims supported broad strength in the US dollar, taking the dollar index to almost unchanged this week and at Friday’s closing levels following the weak US jobs print.
Commodities
Oil pulled back on Thursday after strong gains in the past three days that took Brent crude above $52 per barrel whilst copper plunged sharply for a second time this week to its lowest since February.
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