At the moment markets need a ‘lenting’ hand. After yesterday’s sell-off that continued from the weekend, storms continued to batter the UK today, both literally and figuratively as financial markets turbulent ride continued. Global growth headwinds continued causing a further sell-off and quest for safe havens. We have now had disappointing US job creation figures, China reporting further depletion of their foreign reserves (the lowest levels seen since 2012), a sliding oil price and continued global growth worries heavily compounding fears. Amongst this have been some fairly promising earnings reports, yesterday Randgold shares rose 13.21% and America’s jobs data wasn’t all doom and gloom, underlying unemployment fell 10bps to 4.9%, lows not seen since May 2008. Yet this has been a true ‘drop in the ocean’.
Tuesday didn’t open much better. The one Tuesday a year where we can have two-for-Tuesday’s at Dominos pizza and pancakes is not enough to stop the FTSE 100 losing yet more ground. In the overnight session Japan’s main index lost more than 5%, its worst one day drop since 2013. The impending testimony Janet Yellen is due to give tomorrow and Thursday, as part of the semi-annual monetary report to Congress will now be under more scrutiny and carries more importance in terms of global market direction than first thought, if possible. It is true that many will be eagerly viewing the testimony in the hope that she can provide glimmers of optimism although many will have to accept this is no small feat at the moment.
In the UK today the FTSE managed to temporarily avoid red figures compared to its European counterparts after unexpected strong retail sales data for the month of January. Spending was up 3.3% compared to a year ago, sales in both big ticket items and clothing from New Year’s discounts behind the surprise drive in sales. However, the index could only swim upstream for so long, the brief opposition ending on the news that the UK’s trade deficit had grown. The trade deficit widened to £10.352 billion in Q4, rising from Q3’s deficit of £8.575 billion. This overall makes for the biggest trade in goods deficit ever on record, to the tune of £125.028 billion; even with the help of a low oil price. The worry is that this is set to impact overall economic growth, the FTSE closed the day down 0.88% at 5639.13. Have investors been shrewd this Tuesday? It is possible but news breaking late today from the US has seen the White House cut economic growth forecasts for 2016 and 2017 and Obama has proposed a $10 a barrel tax to oil. Flipping great!