• FTSE 100 tumbles 120 points
  • Miners lead the retreat
  • US stocks slide

5.10pm: FTSE trims its losses but still ends solidly lower

The FTSE 100 ended Thursday down 120 points, 1.7%, at 7,031, while the FTSE 250 lost 318 points, 1.4%, to end at 22,653.

“European markets have led the losses today, with indices throughout the region losing over 2% amid a continued slump in Treasury yields,” IG Senior Market Analyst Joshua Mahony wrote. “Despite the expectation that we should be filled with optimism over a second-half rebound, we are instead seeing traders focus on the bumpy road ahead and implications of rising inflation levels. “

Meanwhile, in the US, the Dow was down 221 points, 0.6%, to 34,461 at midday. The Nasdaq fell 120 points, 0.8%, to 14,545, and the S&P 500 shed 33 points, 0.8%, to 4,325.

“Today’s unemployment claims figure highlights the somewhat mixed recovery taking shape in the US, with an unwelcome rise in claims furthering the recent unsteady performance for the indicator,” Mahony added. “Unfortunately, yesterday’s FOMC minutes highlight the fact that the Fed are already planning for a tapering phase, which is unwelcome news given the volatile nature of the global recovery.”

3.30pm: Wall Street echoes London’s somber tune 

London and European stocks have been joined in their trough by those from Wall Street too, with market watchers saying today’s action has been “curious”.

The FTSE 100 broken below the 7000 mark earlier and has been travelling sideways close to that line since lunch before a fresh lurch lower has now taken it to 6,985, down 166 points or 2.3% so far today. 

“Today’s market price action has been curious to say the least with sharp falls in bond yields and stock markets,” said market analyst Michael Hewson at CMC Markets, with the Euro Stoxx benchmark falling to its lowest levels since 20 May.

He echoed earlier comments that the message from today’s bond market moves is that “the reflation trade is dead or dying”, while equity markets are also coming under pressure due to concerns over a slowing of the global recovery as coronavirus infection rates continue to rise.

“This is a rather different narrative to the one that was predicting that the reflation trade of rising yields might put downward pressure on some of the more expensive areas of the stock market. This almost appears old news now, as investors find something else to fret about…

“What’s more surprising is why markets have chosen to react today to the ongoing rise in cases, and concerns that these could impact global growth prospects, thus impacting inflation expectations. From fretting about inflation moving higher too quickly, markets now appear to be fretting about a demand and an inflation slowdown.”

It’s not all doom and gloom on the FTSE though, with airline stocks on the up after transport secretary Grant Shapps confirmed that quarantine restrictions are to be scrapped for ‘double jabbed’ people visiting amber list countries.

“This means that people will be able to travel for leisure, for business and to see families in amber list countries,” said the minister who once went by the fake name of Michael Green, with the new rules coming into force from 19 July (read more here).

2.45pm: Wall Street opens in the red

The main indices on Wall Street began Thursday’s session on the back foot amid an unexpected rise in weekly jobless claims in the US.

Shortly after the opening bell, the Down Jones Industrial Average was down 1.06% at 34,313 while the S&P 500 dropped 1.24% to 4,304 and the Nasdaq fell 1.57% to 14,434.

The downturn followed US jobless claims data for last week which showed 373,000 Americans filed for unemployment benefits, up from 371,000 the previous week and higher than the 350,000 predicted by analysts.

Despite this, continuing claims came in at 3.34mln, lower than the 3.35mln expected.

Analysts at Pantheon said that while the rise was unexpected, the figure was “noise, not signal” and that market consensus had “ignored the tendency for unadjusted claims to rise in weeks when July 4 falls on a Sunday”.

“The seasonal adjustments are struggling simultaneously with the July 4 holiday period and the annual automakers’ retooling shutdowns, which can make the headline numbers even more volatile than usual. The noise will persist through late July, but we have no doubt that the underlying trend will remain downwards. Laying-off staff now is risky, because if business turns out to be better than expected, re-hiring people will be difficult and likely expensive, given the tightness of the labor market”, Pantheon added.

Back in London, the FTSE 100 was still firmly in the red, sinking 141 points to 7,008 at around 2.45pm.

1.40pm: ECB tweaks strategy

European stock indices are all firmly in the red and little has changed as the European Central Bank has come out with its revised monetary policy strategy.

It is “slightly less radical than media reports had suggested it would be earlier today”, says Andrew Kenningham at Capital Economics

“It still implies that the Bank will keep policy ultra-loose for longer than it would otherwise if inflation rises above 2%, but this commitment is diluted by its insistence that the inflation target is symmetrical.”

Jesús Cabra Guisasola at Validus Risk Management said: “The ECB is trying to mirror the Fed’s monetary policy by letting the inflation target of 2% move above or below this level when needed.

“Nevertheless, this announcement is softer than the Fed’s 2% average inflation target as the HICP inflation average in the euro-area has been well below this goal for the last decade.

“Looking ahead, this decision will provide further support for the ECB to continue its ultra-dovish tone and supporting the eurozone with favourable financing conditions.”

There has been little reaction in the forex market, though Cabra Guisasola noted the euro is now trying to recover some of its losses against the dollar after falling below the $1.18 support level yesterday.

12.50pm: ‘Risk off’ mood expected to hit Wall Street

London’s blue chip index is down 2% and is close to testing the 7000 level that market watchers see as psychologically important, with the FTSE 100 last finishing below the level on 19 May.

Wall Street stocks are also now predicted to join the retreat.

The ‘risk off’ mood has been seen outside equities too, points out market analyst Fawad Razaqzada at ThinkMarkets, with US futures, crude oil and copper prices all weakening, while the safe-haven currencies of the Japanese yen and Swiss franc rallying.

“Bond prices continued to rise, causing their yields to fall further with the 10-year US Treasury dipping to 1.25%, its lowest since 16 February. 

“The falling yields weighed on banks with Barclays shedding nearly 4% to make it one of the worst performing stock on the FTSE 100. Gold found some mild support on the back of falling yields and risk-off tone. Will US investors save the day once again and buy this latest dip, or is this the start of a more meaningful correction?”

So, what is going on?

Razaqzada says: “This morning certainly, investors didn’t appear to be in a cheerful mood. It looks like optimism over a sharp global recovery has been replaced by mild fears that growth is nearing a peak and that central banks are likely to slowly taper their emergency stimulus measures.

“Rising cases of the ‘delta’ variant of Covid-19 has weighed on the recovery prospects, with Japan officially declaring a state of emergency for Tokyo just two weeks before the Olympics.”

With the drop in yields said to be indicative of the death of what’s called the reflation trade, he wonders whether this is to do with a big fall in commodity prices of late. 

“This week’s big drop in oil prices has certainly reduced inflation concerns a little. Tapering concerns are also weighing on the markets. The FOMC’s last meeting minutes, released Wednesday, more or less confirmed policymakers are ready to taper QE, even though officials still felt that substantial further progress on the US economic recovery ‘was generally seen as not having yet been met’.”

The FTSE is down 143 points or 2% to 7,007.93 and the major US indices are predicted to fall at least 1.3%, according to futures markets.   

11.59: Profit taking hits European shares

The Footsie had fallen to almost a 2% deficit on the day but is now attempting to erase some of those losses.

The only blue chip shares in positive territory are Just Eat Takeaway (LON:JET), Ladbrokes owner Entain (LON:ENT) and chemicals group Croda International (LON:CRDA).

Bottom-dwellers are Persimmon (LON:PSN) and Premier Inns owner Whitbread (LON:WTB), with Persimmon having earlier issued an update that revealed demand for new houses remains strong, with selling prices more than offsetting build cost pressures, and that it will pay out a 110p special dividend early.

The shares could be the victim of profit taking, having outperformed peers, but analysts at Peel Hunt said they “continue to think Persimmon is undervalued given the market backdrop, high returns, expected dividend yield and balance sheet strength”.

Whitbread may be the target of selling as double-jabbed Brits are soon to be able to travel abroad more freely, reducing demand for staycations and Premier Inns.

Other big FTSE fallers include Melrose (LON:MRO) owner of auto and aerospace engineer GKN, Barclays (LON:BARC), Lloyds Banking Group (LON:LLOY) and Burberry (LON:BRBY).

10.54am: Football and inflation hangover

As the hangover from England’s Euro win mixes with further mulling of inflation implications and rising coronavirus cases, the FTSE 100 and FTSE 250 are both down more than 1% so far this morning.

Equities across Europe are mostly in the red, it seems, and market analysts don’t really have much of an explanation apart from the drag from miners.

Catering group Compass Group (LON:CPG) is the biggest Footsie faller this morning, along with automotive and aerospace engineer Melrose Industries (LON:MRO) and hotel owner Whitbread (LON:WTB) – which all were badly hit by the effects of the pandemic last year.

The continued retreat of the reflation trade and associated big rally for sovereign bonds is the big story for market watchers, with Deutsche Bank’s Jim Reid flagging the “serious implications across multiple asset classes”.

With yields on US Treasuries down to their lowest closing level since late February, this has been good news for the dollar, with the pound at around two-month lows, which would normally be good for the Footsie.

For equities it has been a “mixed picture”, says Reid, “but in keeping with concerns about the recovery from the pandemic, some of the most Covid-sensitive assets were among the worst hit”.

Market analyst Marshall Gittler at BDSwiss agrees in as much as he sees the market reactions being driven by the virus.

“The new delta variant is getting really worrisome,” he said, flagging new health secretary Sajid Javid’s warning that UK cases could soar to 100,000 per day before long, Spain’s infection rates tripling in recent weeks and other dramatic headlines elsewhere.

“Market concern about the virus can be seen in the relative performance of sectors that benefit from reopening the economy, such as airlines and hotels. Those sank yesterday even while the overall markets rose.

“I can only deduce then that bond markets are rallying in anticipation that the reopening will be slowed and central bank support to the markets continued for longer than people may be expecting. Stock markets would then be rallying in anticipation that rates will remain lower for longer,” says Gittler.

“Lower bond yields & expectations of slower tightening might also help to explain why gold has risen for six consecutive days despite the stronger dollar.”

The FTSE is down over 100 points or 1.65% to 7,032.97, while the FTSE 250 is off 1.4% to 22,652.52.

9.30am: Miners man-mark Footsie

Well, at least this one won’t be going to extra time … the FTSE 100 has fallen heavily into arrears, thanks largely to weak miners.

London’s index of leading shares was down 91 points (1.3%) at 7,060.

“The FTSE 100 fell … with miners and banks the principal sectors weighing on the index, suggesting that investors have started to worry again about the strength of the economic recovery. Miners’ fortunes are heavily tied to commodity prices and the cost of metals and minerals is typically determined by supply and demand for industrial projects around the world,” said AJ Bell’s mouthpiece, Russ Mould.

“Banks are also heavily influenced by economic activity. A strong period of growth means there could be greater opportunities to lend money to businesses and such a backdrop might also point to rising interest rates which increases the chance for the banking sector to make higher profit margins. If the economic outlook is not as strong, then investors start to go off banks for fear that it will be harder for them to push up earnings,” he added.

Entain PLC (LON:ENT), the company that owns the Ladbrokes and Coral bookmaker brands, was up 1.9% at 1,841.5p after its first-half trading update and last night’s England v Denmark (which some of you – living in a cave on the outskirts of Arbroath – might not have heard about).

READ: Ladbrokes owner says Euros shaping up to be biggest ever sports betting event

“England’s semi-final victory will be a double cause for celebration in the Entain offices. An appearance in the final is an open goal for the group, and will be a boon for sports wagers. England’s long run in the tournament may well have been a contributing factor to the news that underlying cash profits are expected to beat consensus at the full year,” suggested Sophie Lund-Yates, wisely avoiding any mention of England “bringing home the bacon”.

“There are a couple of monsters under the bed though where Entain is concerned. The first is the threat of growing regulatory pressure in some of its markets. In the past Entain has done a reasonable job of staying on the front foot where regulation is concerned, and it’s vital it keeps doing so. The current share price valuation is very frothy, and it could go flat fast if there are any unwanted surprises,” she suggested.

8.45am: Inflation fears grip the markets

If anyone expected a market bounce in the wake of England’s tight semi-final victory over Denmark last night, they were to be sadly disappointed.

For London’s blue-chip index was driven by hard-headed realism (which we’ll also need when Gareth Southgate’s team meets a difficult-to-break-down Italy on Sunday).

Fear of inflation and the potential curtailing of monetary support in the US infused the broadly negative sentiment haunting Footsie and Asia’s main markets earlier.

That said there is no means a consensus on the issues. Minutes from the US Federal Open Markets Committee, released on Wednesday, revealed a split camp.

The miners, up strongly on Wednesday, bore the brunt of the early sell-off with Anglo American (LON:AAL) leading the fallers with a loss of 2.6%.

Builder Persimmon (LON:PSN) was off 1.6% after a largely benign trading update.

As Richard Hunter, head of markets at Interactive Investor, pointed out:  “Persimmon is fully back on track, with most metrics improving to above pre-pandemic levels.

“The one area which Persimmon had previously flagged as unlikely to recover before 2022, namely legal completions, is getting extremely close.”

6.50 am: Back foot start predicted 

The FTSE 100 is set to start Thursday on the back foot after risk appetite came and went, before and after the Federal Reserve minutes released last night.

CFD firm IG Markets sees the London benchmark down 24 points, making a price of 7,126 to 7,129 with just over an hour to go until Thursday’s open.

Macro-eyes remain fixed on the economic recovery, the inflation threat and central bank policy as Fed minutes showed division in the camp.

“Minutes from the June FOMC meeting showed two camps wrangling over whether the US economy was ready for a speedier reduction of asset purchases,” Danske Bank analyst Aila Mihr said in a note.                                                                 

“Some officials hinted that tapering of purchases may start earlier than expected given the stronger economic outlook, but some officials also urged caution that incoming information in the coming months would provide a better assessment of the path of the labour market and inflation.”

Wall Street traders saw the Dow Jones close Wednesday higher, rising 104 points or 0.3%, to finish at 34,681 whilst the S&P 500 similarly added 0.34% to end the session at 4,358.

The Nasdaq was only a sliver higher, closing at 14,665, and the small-cap Russell 2000 fell nearly 1% to 2,252.

In Asia, trading factors included worries over the Chinese tech sector and the threat of censure, along with rising Covid-19 numbers.

Japan’s Nikkei this morning slid 200 points or 0.7% to 28,169 and Hong Kong’s Hang Seng gave up 2.4% to 27,279.

The Shanghai Composite was 0.6% lower at 3,529.

Around the markets

The pound: US$1.3785, down 0.12%

Gold: US$1.797, down 0.37%

Silver: US$25.91, down 0.88%

Bitcoin: US$33,208, down 4.5%

6.50am: Early Markets – Asia / Australia

Stocks in the Asia-Pacific region were mostly lower on Thursday as Beijing stepped up oversight on Chinese listings in the U.S., many of whom are tech companies.

The Cyberspace Administration of China (CAC) on July 2 asked ride-hailing giant Didi to stop accepting new user registrations, citing China’s Cybersecurity Law, a sweeping piece of legislation implemented in 2017.

Subsequently, CAC said Didi’s app has serious violations of laws and regulations pertaining to the collection of personal information.

The Shanghai Composite in China dipped 0.73% on Thursday while Hong Kong’s Hang Seng index slumped 2.45%

In Japan, the Nikkei 225 fell 0.68% and South Korea’s Kospi slipped 0.79%.

Shares in Australia gained, with the S&P/ASX 200 trading 0.20% higher.

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