Stocks are rising and investors have publicly become very bullish. But bond and currency markets are showing worry about the prospects for economic slowdown or even a recession.
There are two contradictory and ultimately irreconcilable stories playing out in the global economy; Axios Markets editor Dion Rabouin
Both the market exuberance and trepidation can be traced back to the Federal Reserve’s flip-flop on whether to raise interest rates. Analysts say the Fed’s U-turn shows that the world’s top economic minds see danger.
Global growth is slowing to a halt in much of Europe and Japan; and Canada, Australia and New Zealand may be headed into a recession this year. Central banks and international aid institutions like the IMF are issuing warnings and writing down growth expectations around the globe.
Yes, U.S. stocks are roaring and touching new all-time highs, joining a global rally in equities.
U.S. GDP expectations for the first quarter have jumped from near zero to more than 2.5% in about a month and a half.
China’s economic data has improved and investors are starting to see signs that global trade has bottomed and is poised for a comeback.
The bottom line
At some point, the global economy will have to stand on its own, without artificially low interest rates and trillions in stimulus from central banks.
UK shares fell to three-week lows on Tuesday as investors dumped financial, oil and mining stocks amid renewed fears about Brexit and Rome's budget showdown with Brussels, and Wall Street gloom across tech and retail spread across Europe.
|CRIMSON TAZVINZWA, AIWA! NO!|LONDON (Reuters) – UK shares fell to three-week lows on Tuesday as investors dumped financial, oil and mining stocks amid renewed fears about Brexit and Rome’s budget showdown with Brussels, and Wall Street gloom across tech and retail spread across Europe.
The FTSE 100 .FTSE ended the day down 0.8 percent, its third straight daily loss, with sentiment also hurt by heavy losses in the euro zone after a report Apple has cut production triggered a global rout in tech stocks.
While the political drama of last week has largely calmed, investors worried anew about UK Prime Minister Theresa May’s struggle to get her draft Brexit deal passed in Brussels and at home, with banks bearing the brunt of the selling.
A warning from the Bank of England that the economy could plunge into a crisis not seen since the 1970s in a “no deal” scenario reinforced those concerns, as companies including mid-cap lender CYBG (CYBGC.L) and Electrocomponents (ECM.L) began triggering contingency plans.
“Market selling has taken hold yet again today, with U.S. markets falling into negative territory for the year. Meanwhile, Brexit uncertainties continue to stifle market clarity for the pound and FTSE 100,” said IG market analyst Joshua Mahony.
Banks .FTNMX8350 and insurers .FTNMX8570, down 1.6 percent and 2.3 percent respectively, accounted for most of the losses.
Mining companies fell 1.9 percent as fresh concern about mounting tensions between China and the United States weighed on metals prices, and oil shares were hit by falling crude prices amid signs of growing supplies. U.S. crude hit its lowest in more than a year. [O/R]
Among the few corporate earnings as the results season draws to a close, Compass Group (CPG.L) and Halma (HLMA.L) were in demand, rising 5.4 percent and 3 percent respectively, as investors cheered cost-cutting efforts.
The FTSE 100 fell 0.7% to 6,947 as Brexit fears, the US tech sell-off and trade war concerns weighed on investor sentiment.
In other parts of the world, stock markets suffered a bigger setback.
In Germany, the DAX declined 1.6% to 11,066 while on Wall Street, the Dow Jones slid 1.5% lower to 24,627 at around 4:45pm UK time.
Brent crude oil slumped 5.2% to $63.31 per barrel as the market worried about increasing supply.
LARGE AND MID CAP RISERS AND FALLERS
Shares in Indivior dropped 46.7% to 109.9p on the news that the US Court of Appeals dropped a preliminary injunction against US rival Dr Reddy’s Laboratories.
Low-cost airline EasyJet fell 5.5% to £11.10, despite its annual profit hitting the top end of its guidance range, as the company reiterated revenue per seat would fall in the first half of the current year.
Shares in global healthcare company BTG rallied 34.1% to 824.7p after Boston Scientific agreed a recommended cash offer of 840p per share, valuing the business at £3.3bn.
Catering company Compass gained 3.4% to £16.41 after the market looked past a modest fall in profit and warmed to a strong performance at its North American division.
Shares in AO World slumped 5.8% to 117p as investors reacted to a reported first half loss with revenue growth of 9.9% and just 5.7% in the UK where AO says its core major domestic appliance market is ‘tougher than expected’.
Mining group Anglo American fell 2.9% to £16.74 after diamond sales at its De Beers unit fell.
Broking house Plus500 rallied 11.2% to £14.29 on fresh guidance that its results for 2018 would beat market expectations.
Instrumentation and controls company Spectris surged 12.4% to £23.65 as sales rose 9% in the four months through October. The company also announced it would review its assets to narrow its focus on more profitable businesses.
Caution on Brexit and a new round of PPI provisions put banking group CYBG on the back foot as it traded 16.9% lower at 206.4p
Plastic piping and ventilation system manufacturer Polypipe Group said its revenue had increased 10.2% in the fourth months through October on a like-for-like basis. Its shares fell 2.3% to 361.6p.
Specialist building products supplier SIG shed 1.9% to 106.1p despite forecasting a ‘significant’ profit improvement in the second half, as margin improvement offset falling revenue.
SMALL CAP RISERS AND FALLERS
Aviation services group John Menzies was flat at 500p after it announced it was continuing to trade ahead of last year and was on track to meets its full-year expectations, though revenue growth had slowed.
A profit warning and dividend cut at KCOM wiped nearly a third of its market cap, leaving the share price dwindling at 64.5p.