Equities stumble as dollar revives

Heading into the close the FTSE 100 is 50 points lower, as global sentiment shifts firmly into ‘risk off’ mode.

- London takes heavy losses on first trading day of the month
- Banks and miners again at the forefront
- US dollar rally adds to investor woes

As we move towards the close, the jury is still out on whether this has been another ‘buy the dip’ day or if the market is about to careen lower in a manner similar to January and February. Certainly, the FTSE was in no mood to move higher this morning, despite a good performance from Wall Street. Instead, European indices kicked off the day with a slump that carried on all the way to the US open. Finance shares took heavy losses, and echoes of the bad old days were seen as Italian banks went ‘limit down’, as investors noted that costs keep rising while profits stubbornly refuse to recover. In London, it was a poor Chinese PMI reading that did most of the damage, knocking hefty percentages off mining stocks, as the good feelings of recent weeks eroded on concerns the much-vaunted stimulus has not done enough to stimulate demand.

Stock market bulls might take comfort from the fact that April started badly, but that month had powerful seasonality effects working in favour of more gains, while for May the picture is much more mixed. The very fact that we are hearing so many references to ‘sell in May’ underscores how weak sentiment is, while a strong rally off the lows for the US dollar basket seems to indicate that the falling US currency is about to enjoy a resurgence.