Asian wobbles send Europe tumbling

Japanese troubles have been compounded by European issues, giving little reason to move the bulls off the sidelines. 

London
Source: Bloomberg

Once again Asia has set the template for European and US markets, however instead of China it has been Japan who has knocked confidence. The fall in USD/JPY subsequently sent the Nikkei tumbling 5.4% as nobody wanted to see a strong yen.

The fact that this has materialised so quickly after the Bank of Japan cut interest rates to negative has called into question how successful this tactic will be. So far in 2016 it has not taken much to scare the bulls out of the market and Japan's troubles instantly set European traders on the back foot.

News out of Europe has not exactly offered much in the way of support, and once again Greece is being mentioned on trading floors following am absence over the last couple of months.

The date for further implementation of austerity measures in Greece is getting closer, and the Greek people have already had their tolerance tested to the limit. Worries that this might trigger renewed calls to exit the eurozone have driven ten-year sovereign debt yields up to over 10%.

This a 25% jump in the last month and a 50% increase from the lows of November 2015. As much as this is likely to create a headache for European Central Bank president Mario Draghi, it will offer him the benefit of forcing the euro lower.

The European banking sector has struggled and at the heart of the worries lies Deutsche Bank. Having had to suspend its dividend for the first time since the Second World War was taken badly by investors, but with a large amount of corporate debt needing to be rolled or paid off in the near future, markets are wobbling.

Traders are naturally a cynical bunch and the German finance minister’s public statement that there is nothing to worry about with the banking giant has only made matters worse. The financial sector has been the home for the largest slice of Middle East sovereign funds, but as the oil price has remained subdued it has subsequently felt the brunt of the pain.

As these funds have been forced to reduce exposure to help prop up the finances back home it has been the banks that have taken the biggest hit. Precious metals might be performing well but base metals on the other hand have struggled and as copper has fallen by almost 3%, zinc by 3.3%, lead by 1.7%, nickel by 1.4% and aluminium by 1.15%, the mining sector has again dragged the FTSE lower.

The usual suspects are making up the biggest fallers, Anglo American, Antofagasta, Glencore and BHP Billiton dropping by anything from 5% to almost 10% on the day.   

FTSE 100 risers and fallers (as of 4.35pm) 

Company % change Index points
Next +3.65 +1.34
WPP +3.36 +2.26
Carnival +2.6 +0.54
InterContinental Hotels Group +2.29 +0.45
Wolseley +2.26 +0.73

 

Company % change Index points
Anglo American -11.25 -2.14
Antofagasta -9.37 -0.58
Glencore -8.13 -3.77
BG Group -6.50 -0.03
BHP Billiton -5.85 -3.38

9.30am – UK manufacturing production and industrial production (December): manufacturing production is anticipated to come in at 0.1% on a MoM basis, which compares with the November reading of -0.4%. The YoY reading is expected to be 1.72%, up from -1.2% in November. Industrial production is tipped to be increased by 0.13% on a MoM basis, up from a 0.7% decline in the previous reading. On a YoY basis, the forecast is for a 1.72% expansion, which compares with a contraction of 1.2%.

3pm – UK NIESR GDP estimate (3-month, January): the previous reading was 0.6%

3.30pm – US crude oil inventories: the forecast is for 1 million barrels, down from 7.79 million barrels last week.

Full-year earnings: ARM Holdings, Tullow Oil, Heineken

Half/Quarterly earnings: QinetiQ Group, Cisco Systems Inc, Tesla Motors Inc, Twitter Inc, Time Warner Inc

Trading update: Great Portland Estates, Bellway, Atkins (W.S.)

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