UK Market Comments

Stock markets are selling off fast as the first day of October gets off on the wrong foot, with the FTSE 100 slumping to its lowest level since 8 August.

UK markets

Global indices are in retreat as confidence in the world economy evaporates and investors pull back their positions ahead of major events in Europe and America this week. Across Europe eyes have turned to the ECB meeting tomorrow. The data points to a need for central bank action but the reaction in markets seems to indicate that there are a lot of worried people out there, worried because of the fear that the ECB will do little beyond fine words. In the UK there is plenty to be concerned about too – manufacturing is weaker, Sainsbury’s sales are diving and the FCA has turned its focus on to Tesco. The feelings have manifested themselves in steep losses on the FTSE 100, and until some
positive news emerges from somewhere the selling is likely to continue.

US markets

ADP numbers from the US offered the briefest of comforts, with the September number bouncing back slightly. This points the way to a possible rebound in Friday’s non-farm number, which should go a long way to soothing frayed nerves. However, additional US data put the tone back to negative, with the result that the Dow has slipped below 17,000 once more and is testing its long-term uptrend. October is supposed to be a difficult month, and today fits that narrative nicely, but the longer-term picture could still be viewed as encouraging for equity markets. US earnings season may have to do the heavy-lifting once again, reminding investors that earnings are still holding up well and that the
end of QE doesn’t necessarily spell doom for the equity rally.

Commodities

The first day of the quarter sees commodities enjoying a brief respite from the relentless selling of recent weeks. Gold is enjoying its best day in a week but a short-term bounce should struggle to clear $1222, especially if the ECB and non-farm events still to come this week remove the temporary rationale to move back into gold. One major question is the reaction of China to ongoing protests in Hong Kong – any sign that Beijing is reinforcing existing military forces around the city has the potential to seriously destabilise global markets.

FX

Once again the buyers have come out in defence of the $1.26 line in EUR/USD, ahead of an ECB meeting that is widely expected to reveal nothing of real importance. Discussion of plans to broaden the ABS scheme to include Greek and Cypriot debt is going to be firmly opposed in Berlin, underscoring how difficult the ECB is finding it to establish a consensus policy with national governments. The pound is still above $1.62, but if the UK PMIs still to come this week are as poor as this morning’s manufacturing numbers then the flimsy case for UK rate hikes will take a battering, pushing the pound back to the September lows around $1.61.