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Markets run out of reasons to rally

Heading into the close, the FTSE 100 has given up all its gains for the day, finishing a tough week on a miserable note.

Wall Street
Source: Bloomberg

After a passable performance overnight for the Chinese market, hopes were high that stock markets in Europe and the US could claw back some of their own losses. So far on this side of the pond, that has not been the case. Equity traders have been left bereft of reasons to be optimistic this week, and it looks like the China fears of the past few days will remain with us as we head into a new week. US job numbers kicked off 2016 in fine form, well ahead of estimates, but the lack of wage growth was the fly in the ointment. The fear now is that such good numbers, even with inflation worries, will encourage the Fed to continue with its planned 4 hikes this year, putting fresh pressure on equity markets.

Today’s big faller in London has not been a China-related story. Instead, sports retailer Sports Direct has seen 14% wiped off the value of the company as it issued a surprise profit warning. Such surprises are not welcome at the best of times, but with markets in such a delicate spot it was always going to be tough to get away with a damage limitation exercise. The mention of a continuation of such difficult conditions for the next four months has put the cat amongst the magpies.

As the new week looms, at least UK investors will have plenty of other trading updates, although they will be hoping that these will be better than the ones from Next and Sports Direct this week. The big three listed UK supermarkets will command much of the attention, especially given Sainsbury’s attempt to snap up Home Retail Group. US earnings season also kicks off, so there is perhaps hope that a bullish narrative might develop to rescue us from the current doom-laden atmosphere. 

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