There was a glum tone to US trading earlier, not to mention elsewhere; Europe also saw some chunky sell-offs. Mid-morning the Dow Jones was trading -0.30% lower with American Express and Chevron marking up -1.45% share price falls. GE shares also dipped markedly. To be fair some pessimism was built-in while markets await the US January inflation numbers, due tomorrow.
Should US inflation push higher than expected, helped by tax cuts and rising earnings, that will exert pressure on the Fed to raise rates faster and sooner, though new boss Jerome Powell is on record he wants policy to swerve short-term political pressures.
So stocks today were – strange combination – muted and jumpy. The end to dirt cheap money has been heavily signalled though stock market fervor, for the most part, has appeared to ignore it. The contradiction in this is that the US economy is pulling ahead. But a new boss at the Federal Reserve adds to the unease.
Reflecting the disquiet the US dollar tumbled against the Japanese yen to a new five-month bottom while the spot dollar price bumped to a -0.50% low, 89.69. The pound managed a +0.31% climb against the greenback to 1.3878 helped by a stickier inflation reading this morning while the euro saw a +0.52% climb to 1.2356. Tonight the FTSE 100 was -0.13% lower with Severn Trent and United Utilities seeing -3% falls. Just Eat and WPP saw +3.7% and +3.5% share price climbs.
- UK FTSE 100 7,168.01 -0.13%
- DAX 12,232.83 -0.41%
- CAC 40 5,121.55 -0.36%
- Euro Stoxx 600 371.36 -0.40%
- Dow 24,507 -0.38%
- S&P 500 2,646.98 -0.33%
- Nasdaq 6,978.43 -0.05%
- Nikkei 225 21,244.68 -0.65%
- Gold 1,327.830 +0.08%
- Oil WTI 58.79 -0.84%
BofAML highlights trading nervousness
While some investors and traders have been ‘buying the dip’ there is unease about the longer view. Bank of America Merrill Lynch’s February Global Fund Manager Survey points to a marked retreat on certain fronts. Around 70% of fund managers questioned said they thought the global economy was in “late cycle”.
The BofAML survey saw 200 global fund managers questioned, crucially between the week 2-8 February when global markets were seeing some extreme corrections.
If the negative views held by the survey are (still) accurate then it points to considerable more volatility to come – and more moves into cash and protection positions. Bond allocations are at their lowest for two decades. But there's no shortage of trading potential about.
UK inflation looking stubborn
January UK inflation earlier held onto December’s +3% position – no change. However there are signs UK inflation is on a downturn thanks in part to the returning strength of sterling, making the prices of imported goods less expensive. Especially when compared with the crushing imbalances seen after the Brexit referendum.
The growth pace in the price of materials and fuels slipped from 5.2% in December to 4.7% in January – the slimmest rate of growth recorded since the UK referendum.
But the headline inflation rate is proving tough to move on at 3% (2.9% had been expected by analysts’), a whole percentage point above the monetary policy committee’s 2% target. Either way, this sense of ‘stuckness’ must add pressure to a May interest rate hike for the MPC to beat inflation back to a 2% ‘home’.