European equities drop as Asia finishes down

In mid-morning trading the FTSE 100 is in the red as London follows Asia lower. 

City of London skyline
Source: Bloomberg

Short-term rallies have been the name of the game lately, and the past 48 hours is a great example. The sharp and severe sell-offs of August are lodged in dealers memories, and without a constant stream of positive news their bearish instincts kick in. It is looking increasingly likely that the Federal Reserve will keep rates on hold; meanwhile, the eurozone is edging back towards deflation as equity markets remain downbeat. If ultra-low rates in the US and the possibility of extra QE from the ECB can’t encourage buying, then what will?

Traders in the West are still looking to the East for inspiration, and until the Far East calms down in terms of volatility, stocks markets in this part of the world will remain sceptical.

The BoE will announce its interest rate decision and voting breakdown at high noon, and mortgage holders can relax because the economic uncertainty caused by China last week will help keep rates at rock-bottom levels for many more months.

Shares in Morrisons are offside after disappointing first-half figures. The new CEO David Potts outlined his plans to whip the company into shape, and it consisted of the usual cash conservation, enhancing customer services and closing underperforming stores. Mr Potts’ new plan will take time to implement and even longer to see any benefits from, and in the meantime Morrisons will keep limping along in last place.

We are expecting the Dow Jones to open 80 points higher at 16,330, as the US market recovers some of last night’s losses after Apple shares moved marginally higher in pre-market trading. Whenever US stocks look cheap, dealers swoop in with the confidence that the Fed is not going to increase interest rates next week. The jump in Chinese inflation overnight has left US traders fairly sure that Beijing will not be devaluing its currency against the greenback in the near future. 

The information on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG Bank S.A. accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it and as such is considered to be a marketing communication.