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Market Blog: FTSE drops 7.7% in May, pound slumps
Pound drops to a four-month low against US dollar, remains strong against the weakened euro.
16.51: A duo of warnings about the eurozone and downbeat news on the US economy saw the FTSE 100 end May in the red, down 7.7% in the month to close at 5,295.
Mario Draghi, president of the European Central Bank, said today that the current set-up of the eurozone was ‘unsustainable’, while Olli Rehn, European commissioner for economic and monetary affairs, said that ‘to avoid a disintegration of the eurozone’ there must be deeper integration and cooperation between countries.
Bank of Spain data showed that money has been leaving Spanish banks at the fastest rate since records began in 1990, with €66.2 billion sent abroad last month.
And a string of US data raised new questions about the strength of the world’s largest economy.
As the FTSE 100 closed a smidgeon lower on Thursday, the US Dow index was off 0.34%, while the Eurofirst 300 was 0.7% lower.
The price of Brent crude oil fell along with equity markets, to $103.5.
15.40: In Ireland, where a vote on the European fiscal treaty is taking place today, turnout is reported to be low.
The Irish press is blaming it on the weather. From RTE News:
‘During the recent spell of good weather there were worries a sunny day might reduce turnout, however it is the opposite problem in many parts of the country as rain kept polling slow.’
Voters are expected to say ‘yes’ to the treaty changes, though the vote is still adding to uncertainty in jittery global markets.
15.20: Shrewd Brits might find Europe increasingly attractive as a holiday destination compared with the US as the pound continues to lose strength against the US dollar.
In today’s trading the pound is down against the dollar to $1.54 – a four-month low – having fallen against the strengthening US currency since the end of April.
Please visit our full site to view this interactive chart
The pound has been gradually strengthening against the euro, though, for almost a year, though today sterling was down slightly at €1.246.
Meanwhile, the downbeat US data (see below) have put paid to what remained of Europe’s fragile Thursday market gains.
Major markets across the US (Dow down 0.5%), Europe (Eurofirst 300 off 0.65%) and the UK (FTSE 100 off 0.1%) are all showing losses.
13.52: The US economy grew less than expected in the first quarter of the year, with the GDP reading revised down from 2.2% to 1.9%.
The news, though downbeat, was expected but comes alongside data showing US companies added just 133,000 workers in May, lower than the 150,000 average forecast from economists. The ADP payroll figure for April was revised down by 6,000 to stand at 113,000.
Ahead of a key US jobs report tomorrow tallying non-farm payrolls, James Knightley of ING Bank said: ‘This report is generally viewed as being the best single indicator for the private payrolls growth figure we get in tomorrow’s labour report so it may lead to a modest downward revision to market expectations.’
A separate report showed US claims for unemployment benefits rose last week for the fourth straight week.
After the string of US news European markets are struggling to hold onto their earlier gains. The FTSE 100 is up 15 points to 5,312, while the French CAC and German Dax are both trading flat.
Investors continue to seek safety, driving 10-year gilt (UK government bond) yields down to 1.627% and German 10-year yields down to 1.244%.
12.44: Reuters' May funds poll shows global investors now have more money in historically troubled Japanese equities than in the eurozone.
Amid the debt crisis, European shares have fallen more so far this year, with the Eurofirst 300 off 3% since the start of the year, while Japan's Nikkei 225 is flat.
11.46: Shares in ITV (ITV.L) are languishing at the bottom of a rising FTSE after a brokerage suggested the broadcaster could face ‘summertime blues’.
Analysts at Liberum warned that ‘July and August TV advertising markets may be weaker than expected with reports some advertisers have cancelled planned campaigns’.
The shares lost 3.7p or 4.7% to 73.6p, even as the same analysts, while warning of ‘short term volatility’, said that they still think ITV is a ‘buy’.
‘We are NOT changing our stance on ITV: we like it because of longer-term fundamentals, the restructuring story and the possibility of cash returns that its net cash position allows.
‘However, if the Q3 estimates are correct, it may cause downward pressure on the stock in the short term so investors should be aware of this. September is likely to be key, as an indicator of Q4 patterns.’
Please visit our full site to view this interactive chart
11.27: Some good news from the eurozone to buoy markets – even the Spanish stock exchange is up (Ibex 35 0.5% higher).
The German unemployment rate fell to 6.7% in April from 6.8% in March and retail sales in the eurozone’s strongest economy increased for a second straight month, data showed today.
Inflation in the eurozone fell to 2.4% from 2.6% in April. Economists at Commerzbank noted that this was mainly due to the falling oil price, as shown in the chart below (also see post below at 08:51):
Meanwhile, opinion polls point to a ‘yes’ vote in Ireland today, where a referendum is being held on Europe’s planned fiscal treaty.
European Central Bank President Draghi, speaking in Brussels at the European Systemic Risk Board this morning, said leaders should ‘clarify’ their position on the euro as he emphasised how severe the crisis was.
Draghi said that ‘to ensure a more resilient financial system’ measures should be taken to implement ‘credible mechanisms for the recapitalisation and restructuring of banks’ and ‘improve banking supervision and resolution at the European level’.
The euro is doing better today having been sharply sold off. It is up at 1.24 against the dollar.
08.51: Another commodity making a big lurch downwards (see gold price below, post at 08:12) is oil. The Brent Crude oil price continues to fall in line with the slumping global economy, also helped by ample supply (particularly from Saudi Arabia) and the US dollar's appreciation.
If oil price declines continue then it could boost real incomes, corporate profit margins and consumption.
This morning Brent is down at $104.5, having gone below $103, lows we haven’t seen since December after which the oil price spiked sharply.
08.12: Investors have been fleeing to safe havens – but they’re choosing the US dollar, or at least treasuries, rather than gold.
According to Bloomberg, gold is poised for its worst run of monthly losses in almost 13 years. ‘A fourth monthly decline would be the metal’s longest run of losses since the period to August 1999,’ the newswire reports. The chart below shows the poor performance of gold over the past four months.
The price of gold has an inverse relationship with the US dollar, which has strengthened against a struggling euro. It may still seem bizarre that the price of gold has fallen amid such global turmoil. Julian Jessop of Capital Economics notes that 'gold continues to trade more like a risk asset, reflected in the unusually high positive correlation between daily changes in the prices of gold and European equities'.
This morning gold is trading higher at $1,562.
Meanwhile, European stock markets are making gains after yesterday's sell-off. FTSE 100 has hit 5,336, a gain of 0.74%. Eurofirst 300 up nearly 0.5% at 980.
07.40: Uncertainty of a Spanish variety is set to dominate markets again today, though the Irish could also get in on the act with a referendum on Europe’s new fiscal treaty.
To start with though, the FTSE 100, which fell to 5,297 yesterday, was set to open slightly higher in Thursday morning trade.
Overnight the majority of Asian shares fell, with Japan’s Nikkei 225 1% lower after data showed the struggling economy’s industrial production rose less than forecast in April.
In the US, following a dire day on European markets on Wednesday, the Dow Jones industrial average lost 161 points, or 1.28%, to 12,420. The S&P 500 Index dropped 19 points, or 1.43%, to 1,313. The Nasdaq Composite fell 34 points, or 1.17%, to 2,837.
Facebook shares closed down 2.3%, their sixth decline in eight days of trading.
In other news, Brazil’s central bank has cut its benchmark lending rate to an historic low of 8.5 % as it attempts to fend off the impact of the global downturn.
For more detail on the overnight markets click here.
To read our roundup of the day’s main newspaper headlines click here.
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by Jennifer Hill on Jul 24, 2014 at 14:49