US Equities Sell Off Resumes
A fresh bout of selling hit Wall Street overnight sending US equity indices plummeting once again. For the second time in less than a week, the Dow plunged by over 1000 points, closing 4.2% lower, in its second worst point drop in history (the biggest being on Monday). The S&P 500 also closed 3.8% lower as fears over treasury yields, inflation and future interest rate rises continued to capture investor attention.
Renewed selling in the US, spilled over into Asia, where the Nikkei was seen over 3% lower mid-session. Europe also looks set to finish the week on the back foot, with futures in the red across the board, although these losses are showing signs of being pared. From an asset allocation perspective, the US sell off is making Europe look a lot more attractive. Financials, basic materials and energy stocks are expected to be the biggest losers as trading gets underway and if trends mirror those in Asia.
Glad to see the back of a tough week
After extensive volatility and losses across the last week, many traders will be glad to see the back of the week.
Heading into Friday, the FTSE was down 3.7% on the week, whilst the Dax was showing a weekly loss of 4%. Still these figures look tame alongside the Dow and S&P which are now are officially in correction mode, after dropping 10% since recent highs, reached just two weeks ago.
These levels are starting to make for uncomfortable viewing, but they are not by any means representing the end of the world. Even with further headline-making losses, this pullback still represents what is considered a normal pullback under standard market conditions. The problem is, because we haven’t actually seen a serious pullback in the past few years of this bull market, it is creating quite a stir.
Dollar higher as labour market continues to tighten
In the forex markets the dollar closed Thursday out in positive territory, its 7th consecutive winning session. The greenback found support from higher treasury yields, increased interest rate hike expectations and solid jobless claims data, which continue to point to a tightening in the US labour market. Today there is no high impacting data for dollar traders to digest, so the crosses could be key to identifying potential trades.
GBP/USD sub $1.40 ahead of barrage of UK data
Following a more hawkish BoE and the central bank lifting economic forecasts, the pound shot higher, pushing through $1.40 to a day’s high of $1.4066. However, GBP/USD failed to remain above the key psychological level of $1.40 after the dollar strengthened in the wake of stronger US jobless claims. Today, a slew of UK economic data in the form of industrial and manufacturing production, construction output, in addition to the NIESR GDP estimate for January will be under the spotlight. Investors will be particularly keen to see whether the UK economy appears to be in condition to be able to sustain an interest rate rise, possibly as soon as May.
Opening calls
FTSE to open 46 points lower at 7124
DAX to open 10 points lower at 12,250
CAC to open 7 points lower at 5144