A weak lead from Japan, where stocks fell over 3.5%, has led to a sell-off across global markets at the beginning of the new quarter. Nervousness before the US jobs report is playing its part in keeping sentiment subdued.
It may have taken April Fools’ Day for investors to question whether we’re in a fool’s rally. The greater fool theory states that investors will often buy overpriced stocks in the belief they can sell it to the “greater fool” at a higher price. We may be starting to run out of greater fools.
Markets have been reassured by the dovish tone of Fed Chair Yellen and the resulting weakness in the dollar. The US labor market is in good shape, and a strong US jobs report has the potential to unravel the dollar’s recent sharp decline by bringing June back on the table for a rate hike.
The FTSE 100 is outperforming its mainland counterparts, which are suffering the added blow of the strongest euro in five months, a blow to Europe’s export-orientated economies. Relative strength in the UK stock benchmark can be in part explained by more positive data out of China overnight, which has limited the downside in basic resource shares. Official and private surveys of China’s manufacturing and services industries both improved in March.
Shares of Sainsbury's (LON:SBRY) dropped after Home Retail Group accepted the supermarket’s £1.4bn takeover offer. The “multi-product / multi-channel” idea of a combined Sainsbury / Argos as well as some favourable financing has seen markets react favourably in the lead up to the deal. The sell-off in Sainsbury’s shares today is really just a function of a weak broader market and a bit of buy the rumour, sell the fact.
Royal Mail (LON:RMG) was propping up the UK benchmark as the delivery service prepares to face another stand-off with unions after talks came to no conclusion.
US stocks look set for a weaker start as caution ahead of the jobs data and disappointment over Anbang pulling out of the Starwood bidding race weighs on sentiment.
USA pre-opening levels
S&P 500: 3 points lower at 2,056
Dow Jones: 17 points lower at 17,668
Nasdaq 100: 12 points lower at 4,471
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