Evening market comment: Global equities resume selloff on higher US rate fears

Global equities resume selloff on higher US rate fears

Despite a stronger start the FTSE soon followed its global peers into the red, dragged lower by renewed selling on Wall Street.

The pound wasn’t offering much support to the FTSE, as it as good as ignored the weaker than forecast retail sales figures. After a summer of spending the UK consumer unsurprisingly tightened their belt, with sales declining by a more than expected -0.8% month on month. However, on an annualised basis we are still sitting at 3% growth which is decent. After a mixed batch of data this week and clarity over Brexit still a long way off, the pound is looking tired rather than resilient.

Chinese GDP in focus

The UK mining sector has been falling across the session, as concerns are growing over the health of the Chinese economy. Chinese stocks fell heavily overnight as a toxic combination of factors saw the CSI 300 drop 2.2% to its lowest close in 31 months. Miners could be in for another difficult session on Friday, as China’s GDP is expected to decline to 6.6% in Q3, down from 6.7% in Q2.  This will be the weakest level of growth in almost a decade for China, and the first indication of the impact of Trump’s trade tariffs on the economy. Given that the full scale of the impact of the ongoing trade war is not expected to be seen until Q4 and 2019, a surprise to the down side for Q3 GDP is going to sound loud alarm bells for investors.

Higher rate fears overshadow corporate earnings

The Dow tumbled 100 points in early trade as investors continued to digest the distinctly hawkish Fed minutes. A unanimous agreement from the Fed that rates should keep on rising has sent the two-year treasury yield on to 2.9% its highest level since June 2008. This comes after the 10-year yield hit a 4-year high last week initiating a global sell off in equites. Concerns over higher interest rates dampening growth are outweighing strong corporate earnings.

Oil Inventories increase again

Oil eased on Thursday, trading over 1% lower after the 4^th weekly increase in US inventories tells investors there is no cause for concern over supply even as US – Saudi tensions ramp up and falling Iran exports offer support. US crude inventories rose by 6.5 million barrels last week, almost three times what had been expected. And this was even after US crude production dipped by 300,000 barrels owing to Hurricane Michael. Week after week stocks are building, even whilst the risk narrative suggests otherwise.