UK & Europe
UK and European stock markets dived alongside the US dollar as risk-off sentiment trumped a modest rise in the price of the oil and better than expected service sector data from China.
While the price of oil spent most of the day higher, it remains down substantially over the week and a near doubling of US weekly inventories according to the EIA could tip the balance to the downside. The overall weakness in commodities remains a major point of concern across markets.
Financials led the decline on the FTSE 100 with Hargreaves Lansdown (L:HRGV), Standard Chartered (L:STAN) and Barclays (L:BARC) amongst the top fallers. The declines were not contained to UK-listed banks as the likes of JP Morgan Chase (N:JPM) and American Express (N:AXP) fell on the Dow jones Industrial Average. Major central banks, including the Federal Reserve are steering back away from higher interest rates which could have served to boost bank lending margins.
US
US markets sank in early trading on Wednesday as a drop in the financial sector offset positive merger news of the agreed deal between Syngenta and ChemChina.
Syngenta has agreed to be taken over by Chinese state-owned ChemChina for $43bn. The Swiss based- Syngenta beat quarterly earnings estimates on Wednesday but the top and bottom line has been on a downward trajectory because of lower demand for pesticides and agrochemicals. If the rise in consumer demand for organic food continues to expand across the developed world then demand for pesticides has to go down. Instead of bulking up market share in a declining western market with Monsanto (N:MON), Syngenta has sold out to the Chinese to tap rising demand in China.
Shares of Yahoo sunk as much as 2.5% after CEO Marissa Mayer failed to convince investors her latest strategic plan that includes laying off 15% of the company’s workforce will be enough to turn around the company’s fortunes. The linger prospect of asset sales or even a full sale could keep a floor under prices following Ms Mayer’s comment that the internet search company is “open to any transactions.”
FX
US dollar weakness accelerated sharply on Wednesday after the Fed’s Dudley demonstrated some apprehension about the intended pace of rate rises in the US this year. Dudley saying that “continued financial tightening could weigh on the Fed” suggests unwillingness on the part of policymakers to hike rates while markets are throwing a wobbly. The concern the Fed has is that a downturn in financial and commodity markets could spin out into the real economy.
The ridiculous result is that the market is taking its cues from the Fed and the Fed is taking its cues from the market.
The Japanese yen gained on a flight to safety despite very direct comments from Bank of Japan governor Kuroda hinting a further monetary accommodation. Kuroda said there was “ample room” to expand asset purchases and that it was “possible” to cut rates further into the negative if necessary. USD/JPY dropped beneath 119, a fall of over 250 pips in three days.
The UK service sector unexpectedly expanded quicker than expected in January according to PMI data. The British pound rose since the positive data for the largest part of the UK economy indicates a slightly faster pace of economic growth in the first quarter. The service sector rise flies in the face of concerns that the threat of Britain’s exit from Europe is hurting business. Looking ahead the outlook is slightly less rosy as falling order books mean potentially less hiring in the next 12 months.
The euro fell slightly after data showed the German service sector expanded at a slower pace in January while France’s service sector expanded again after contracting in the wake of the Paris terrorist attack.
Commodities
Oil prices saw a dead cat bounce as the US dollar bounced despite a bigger than expected build in US weekly inventories.
Gold reached a 3-month high just shy of $1140 per oz, breaking above its 200 day moving average in the process as investors sought out the relative safety of precious metals amidst a decline in equities and the US dollar.
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