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Anyone hoping for a Friday bounce in stock markets has been sorely disappointed, but investors can hardly be blamed for not wanting to hold positions into the weekend. The Crimean referendum is not going to calm tensions in the region, and this raises the uncomfortable possibility of more disruption in the week to come. A dalliance with the 6500 level means the FTSE is now right on the line of its current uptrend, and so far no signs of dip buying have emerged.
Supermarket stocks hit hard
A week of losses sees the FTSE 100 down nearly 3% from Monday morning, suffering its worst week since the middle of 2013. A renewed burst of concerns about Chinese growth has hit the mining contingent hard, and this has dragged the index down with it. The drop in UK supermarket share prices is just the icing on the cake, but it is hard to escape the feeling that we are not entirely finished with losses just yet. After the rout in supermarket stocks yesterday, today investors are being more discerning, pushing up Tesco and Sainsbury’s by over 2%, compared to the small dead-cat bounce in Morrisons. As Morrisons vacates the centre ground to compete with its low-budget German rivals, the battle between Tesco and Sainsbury’s will become more intense. Victory will go to those with the greatest willpower and the deepest pockets.
Away from the main market, Boohoo.com is the favourite on the small caps today, up 40% as the day winds down. It might be valued at almost 100 times its earnings, but enthusiasm for retailers appears to be strong, especially when its predecessor is runaway success ASOS. It is riding high now, but the fate of Boohoo is tied to the fickle 16-24 market; success can vanish as quickly as it appeared.
Fresh rumours weigh on US markets
US markets have not suffered the same selloff as seen in London, but so far this afternoon they have only reversed a small part of the steep drop witnessed on Thursday. The culprits remain the same; Ukraine and China. Rumours of fresh corporate defaults abound in China, while the potential for a heightened standoff between the old Cold War foes means that cash and treasuries remain the preferred destinations. Warren Buffett might be imploring the herd to stick with equities, but it is a sad truth that the Sage of Omaha’s advice usually goes unheeded.
Gold vulnerable to shorting
Geopolitical tensions are lifting gold and oil this afternoon, as the yellow metal reaches a six-month high. The $1418 region now looks to be the level to beat, but the surge has carried gold into overbought territory, leaving it vulnerable to some opportunistic shorting. It was out of favour for a long time, but like an aging rocker gold seems to have rediscovered its appeal; only this time it's political risk, not inflation and currency debasement, that is driving the move.
USD/JPY loses its appeal
Risk appetite is more mixed in currencies, but in USD/JPY the US currency has lost its appeal. It has dropped back to the February lows on safe-haven buying of the yen, throwing open the possibility that the ¥101 level will see a test in short order.
Monday’s eurozone consumer price index will be key for the euro, which is still looking to push above $1.39. Draghi took the wind out of the rally yesterday, and a weak reading could easily see the currency pair drop back on expectations of action from the European Central Bank.