Overnight we’ve seen the pound make a new 31 year low against the US dollar at 1.2797 as concerns about the UK economy continue to buffet the currency, with the prospect we could well see further declines particularly against the US dollar and the Japanese yen which is not likely to please central bank officials at either institution.
While the FTSE100 continues to outperform, broader European markets and the FTSE 250 remain under pressure.
In the wake of yesterday’s property fund suspensions Aviva (LON:AV) released a statement saying that it was too soon to judge the impact of Brexit on the company and the value of its holdings.
Despite this assurance sentiment continues to remain fragile which is not altogether surprising given the apocalyptic warnings of doom, gloom and recession being peddled into the lead up to the vote of the possible fallout that a “Leave” vote” could result in.
Given the predictability of human behaviour it shouldn’t really have been too surprising to see the number of Google (NASDAQ:GOOGL) searches for the word recession spike in the aftermath of the vote; nonetheless the uncertainty generated by the ensuing political vacuum is likely to weigh on sentiment for quite some time to come.
Last night Sainsbury (LON:SBRY) CEO Mike Coupe argued that Britain was in danger of talking itself into a recession. The recent trading updates from UK house builders Persimmon (LON:PSN) and Redrow (LON:RDW) haven’t thus painted that negative a picture despite the slump in the June construction PMI seen earlier this week, so for now the effect of recent events still remain difficult to quantify with any accuracy.
That being said while sentiment remains so fragile investors continue to be in “shoot first and ask questions later” mode as banks and house builders continue to get clobbered, while in Europe the major benchmarks are also under pressure after German factory orders showed no change in May, against an expectation of a 1% rise.
Banks across Europe continue to remain under pressure as a result of ever more negative yields with UBS (SIX:UBSG), Credit Suisse (SIX:CSGN) and Germany’s Deutsche Bank (DE:DBKGn) continuing to make new record lows.
While Bank of England Governor Mark Carney made it clear that UK banks would have scope to lend money to the real economy, given all the uncertainty it is not immediately obvious that the demand is likely to be there, in the absence of any political certainty about the makeup of the next UK government.
Retailers have also slipped back led by Tesco (LON:TSCO) and Marks and Spencer (LON:MKS) after BRC shop price deflation decreased to -2% in June, raising the prospect of further erosion of profit margins.
On the plus side gold miners Randgold Resources (LON:RRS) and Fresnillo (LON:FRES) are leading the way on the FTSE100, along with utility providers United Utilities (LON:UU) and Severn Trent (LON:SVT).
US markets look set to pick up the baton from this morning’s negative European session with a lower open ahead of the publication of tonight’s FOMC minutes. Unfortunately these aren’t likely to shed too much light on the Feds thinking vis-à-vis the state of the US economy now, particularly in light of recent events.
What they might do is shed further light on the discussion that took place over the St. Louis Fed’s James Bullard, and the mystery of the missing long term dot, and the thinking behind his transformation from an Uber hawk to Uber dove, and arguing that only one more hike would be needed between now and 2018.
The Dow Jones is expected to open 75 points lower at 17,765
The S&P500 is expected to open 9 points lower at 2,079
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