A weak session in Asia with equities trading in the red and nothing much different here in Europe. The dollar continues to strengthen and this remains one of the key reasons that commodities are under pressure. The DXY recovered by 1.85% since it dipped to 94.58 post-FOMC on March 18th, yet the probability for a June Fed hike has fallen to 38%. The market doesn’t however see the next rate hike happening any time before September this year.
Followed closely by financials, the materials sector is the worst performing sector on the FTSE100 this morning which fell over 1% in the first fifteen minutes.
Despite the latent demand for the metal earlier this week, gold prices have faltered even further this morning and look set to retreat to $1200/oz.
Sterling is one of the worst performers. . The market is hedging aggressively against Brexit risks and the 1.40 level against the US dollar is right around the corner. Decent size vanilla puts on GBPUSD are waiting to be activated at today’s expiry. Against the single currency, the pound is trading at its lowest since late December 2014. The 80p marker is but a hop, skip and a jump away from present levels.
A plethora of ratings cuts and the downside bias almost certainly being exacerbated by fairly weak trading volumes as we head towards the Easter long weekend see all European indices down by an average of 0.8%. We also have a number of stocks trading ex div which is shaving some 4 points from the UK index: Prudential (-3.23%), Sky (-1.35%) and Schroders (-3.43%).
Goldman Sachs has taken a red pen to Fresnillo (-3.37%) and Lonmin (-10.9%) downgrading both to sell. This comes hot on the heels of downgrades from Deutsche Bank yesterday with regard to Glencore and Kaz Minerals. Both were pushed back to a hold rating while the bank maintained its sell rating on Lonmin and Glencore.
It seems that the recent rebound in this sector has been deemed temporary and the belief amongst some of the brokers is that it was merely a reflection of a weaker dollar and the recent Chinese stimulus rather than any strong underlying fundamental story.
In what will likely be an additional setback for the UK economy, retailer Next plc has warned that 2016 could be the "toughest" year since the financial crisis. One of the more resilient companies in the aftermath of the downturn posted a 5% rise in underlying pre-tax profits to £821.3 million for the year to the end of January. The retailer is now expecting a slowdown in the global economy and for profits to fall by up to 4.5%. The stock has dropped 8.33%. Since striking an all-time high of 8175p in early December, the share price has been under pressure and now trades some 25% lower.
With UK retail sales slated for release at 9.30am, we may well expect to see a miss on the -0.7% decline consensus expectation which will only add to the waning sentiment towards the pound
Unemployment claims, US durable goods orders and services PMI will be the other major macroeconomic events of the day. Claims are expected to print a slightly higher 267,000 from last week’s 265,000, while services output is expected to regain the juncture between contraction and expansion. It’s slated to come in at 51.3
We call the down 40 points lower to 17464.
With trade at the top of the agenda, expectations for a smooth running G7 Summit were low even before the meeting started. A