Rally turns to rout as US catches cold

Dismal earnings and economic data from the US see markets retreat around the globe, with the FTSE down 60 points as it heads towards the close.

US traders watch screens
Source: Bloomberg

Sellers emerge after weak durable goods

The modest pullback seen this morning has become something far more substantial thanks to news from the US. The post-quantitative easing shine on European markets had already been taken off as the post-European Central Bank euphoria fades, but the sellers have emerged from their bunkers after days of sheltering, encouraged by durable goods numbers that were very weak and an earnings season that has been very much below par.

International Consolidated Airlines Group SA (LSE) and easyJet are still holding on to some of their gains from the morning but have seen their wings clipped as the session moves into ‘risk off’ mode. Meanwhile, solid dividend stocks like Centrica, United Utilities and SSE are back in demand, even though price cuts are the fashion right now for utility stocks, while gold miners like Randgold are moving up thanks to a rally in the price of the metal that has seen it move back above $1290.

Underwhelming US earnings encourage selloff

Those looking for someone to blame for the selloff can find a number of possible targets this afternoon. The picture had already been clouded by Microsoft’s figures last night, but sentiment took a further knock as durable goods orders slumped, with grave ramifications for US growth numbers for the final quarter. Improvements in consumer confidence and new home sales were nothing compared to this unpleasant surprise. Meanwhile the distinctly underwhelming tone of earnings season got worse with a big miss on earnings from Caterpillar and a deterioration in Procter & Gamble’s numbers as well. The World Bank’s warning from just two weeks ago looks very prescient now, as a hitherto strong performance from the US begins to weaken. The world can ill afford Uncle Sam catching a cold. 

Gold's support stabilises

So far, 2015 has taught investors to love gold again, and despite a wobble yesterday that newfound affection appears stable. After testing the water below $1280 yesterday the metal has come storming back today thanks to the dire news from the US, helped on its way by Morgan Stanley pushing back its call on US rate hikes into 2016.

Growth fears meant that copper took a hit once again, reversing much of yesterday’s move, although oil remained in positive territory.

Dollar weakens after slump in US economic performance

It was a tale of dollar weakness this afternoon for GBP/USD and EUR/USD. A Greek election was supposed to cause market ructions but as usual it was an entirely unforeseen development, namely a slump in US economic performance, that has created greater excitement. It has been almost two months since the euro saw back-to-back daily gains against the dollar, while sterling was able to puncture the $1.52 level again despite a GDP reading for the UK that was of rather mixed quality.

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