If yesterday was a bad day for Western indices, it certainly followed suit in Asia. The Nikkei fell 5.4%, the worst drop since June 2013. The Topix fared no better, down 5.5%. The Yen also strengthened, breaking the $115 level and pushing to a 15 month high at 114.21. It finally happened for the 10 year bond too, turning negative for the first time at -0.075% - the first time a G7 country has yielded negative on that term. Despite actions from the BOJ in respect of negative rates, the yen is now stronger than it was back on January 29th.
Meanwhile, industrial production in Germany fell 1.2% month-to-month in December, well below the consensus for a gain of 0.5%. This pushes the year-over-year rate down to -2.2% from 0.1% in November. When it’s going badly in Germany, it doesn’t bode well for the rest of the zone. There are significant downside risks to GDP growth now in the fourth quarter and the stronger euro, (on foot of the rush into Eurozone government bonds) now trading at a 3 week high against the pound and trading close to $1.12 against the greenback will not be helping matters.
Mario Draghi will have his work cut out for him if he is to calm markets next month. It’s becoming obvious that global central bank action is at the end of its tether and lacks the teeth it once had.
All this negativity in risk assets has helped to push gold towards the key $1200/oz level as the fear of risk taking manifests itself in the rush to safe havens.
Despite a foray lower in early trade, the FTSE is holding above the 5700 level despite the lagging materials sector. You need to search hard for the good news but British retail spending growth hit a four-month high in January. It increased 3.3% in January compared to last year according to the BRC. This has in some respects kept the pound above the $1.44 level but has in the main been a plus for retail stocks. Next is 2.57% higher while Tesco has taken back some of yesterday’s losses and adds 2.58% this morning.
The UK trade deficit widened to £10.3bn in the fourth quarter with annual number now at its widest since 2010. Despite the weaker pound recently, exports failed to make good on it with December exports falling 0.3% while imports dropped by 4.8%.
WPP is up 2.24% despite the downgrade from Investec yesterday, this gain must be taken in context with the substantial losses the stock has undergone recently. It remains over 13% lower from the high of 1577p established at the end of December.
Randgold Resources (-3%) the gold miner has been downgraded to "hold" from "buy" at HSBC following their recent rally in line with safe haven flows into the yellow metal.
Anglo American (-2.5%) reported the Kumba Iron Ore unit has contributed $238M FY15 underlying earnings, down significantly from $693M a year earlier.
Legal & General (+4%) has been greeted with a positive market response with its release of a breakdown of the firm’s bond portfolio backing its annuities. 24% have external AA ratings, 28.5% are A and 27.3% are BBB.
The world’s largest tour operator, TUI (-1.64%) has reported a narrow first quarter loss with security concerns at certain destinations being the main reason. However they pointed out that, "Northern Region and Riu have performed particularly well, and we remain pleased with demand and yield performance in our Cruise business. We are continuing to deliver our merger synergies as planned, with a further E10M realised in the quarter, and the disposal process for Hotel beds remains on track." The company have also confirmed its outlook for 2016 saying: "Based on current trading and the resilience of our integrated business model, we continue to expect to deliver at least 10% growth (assuming constant foreign exchange rates and based on current Group structure) in underlying EBITA in 2015/16."
We call the Dow to open flat around 16023.