Global markets drop after London attacks
World stock markets were mostly lower yesterday as traders reacted to the latest terror attacks in London that have come ahead of a British general election later this week. Markets reacted also to Friday’s poorly-received US jobs data and an escalating diplomatic crisis involving Qatar and Gulf neighbors.
After opening slightly higher, London’s benchmark FTSE 100 index was down around 0.4 percent by mid-afternoon, compared with the close on Friday-”as investors digest last week’s soft US jobs report, another terror attack in London in the run up to the UK election and a (brief ) jump in oil prices after a breakdown in Middle East diplomacy”, said Jasper Lawler, senior market analyst at London Capital Group. “Global equities are flat to negative as investors take risk off the table ahead of a busy week for politics and macroeconomics,” said Accendo Markets analyst, Henry Croft.
Forex.com analyst Fawad Razaqzada agreed. “It is going to be a big week for the markets this one, especially towards the end of it,” he said, pointing to the British general election, the European Central Bank’s policy meeting and testimony by former FBI Director James Comey in the United States. In the eurozone yesterday, the Paris CAC 40 was more than half a percent lower, while Frankfurt’s DAX 30 index was shut for a German public holiday. Police carried out more raids and arrested “a number of people” yesterday after the Islamic State group claimed an attack by knife-wielding men who mowed down and stabbed revellers in London, killing seven people before being shot dead by police.
It comes as Prime Minister Theresa May seeks to keep her Conservative party in government and steer Britain through the Brexit process following the general election on Thursday.
Elsewhere yesterday, Asian stock markets began the week mostly lower as investors mulled the impact of the weekend terror attack that saw the pound lose ground.
“The pound is expected to remain volatile this week against the backdrop of the tragic weekend events in London and the flakiness of the polls in predicting what the outcome of Thursday’s general election vote is likely to be,” said Michael Hewson, chief market analyst at CMC Markets UK.
‘Ugly’ jobs report
Occupying investors’ minds was also a US employment report that showed wages growth and hiring coming in below expectations and testing confidence in the global economic outlook. “‘Ugly’ best describes Friday’s US employment report,” said Stephen Innes, senior trader at Oanda.On commodity markets, oil prices were flat after a short rally, while gold hit a five-week high at $1,282.16 an ounce thanks to its status as a haven investment. Daniel Hynes, an analyst in Sydney at Australia & New Zealand Banking Group, said the decision by Saudi Arabia, Bahrain, the United Arab Emirates and Egypt to sever ties with Qatar, citing its support for terrorism, would have minimal impact on crude prices.
“On the face of it, it could present a risk, but I don’t think there is too much in the Qatar situation,” he told Bloomberg News. “Geopolitical risks haven’t really been that influential in recent times and I don’t think that will change too much.”
Dollar edges up
The dollar edged up yesterday, but remained not far from the seven-month low it plumbed against a currency basket after disappointing US employment data prompted investors to pare back expectations of US Federal Reserve rate hikes.
The dollar index, which tracks the greenback against a basket of six major currencies, edged up 0.1 percent to 96.798 , not far from Friday’s nadir of 96.654, its lowest since Nov. 9. Sterling slipped, under pressure after the third terrorist attack in Britain in less than three months killed at least seven people on Saturday. The attack came days ahead of Thursday’s UK election, in which polls show British Prime Minister Theresa May’s lead over the opposition Labour Party has narrowed but is still intact. US nonfarm payrolls rose by 138,000 in May, Labor Department data showed on Friday, suggesting the labor market was losing momentum despite the unemployment rate falling to a 16-year low of 4.3 percent. Economists polled by Reuters had predicted an increase of 185,000. While market participants still expect the US central bank to raise interest rates this month, many expect a more dovish course for the second half of this year.
“The pessimistic story of the jobs data should weigh on the dollar as the Fed is still expected to hike rates in June, but most market participants believe it won’t hike for a long time after that, and maybe not in September or December,” said Masashi Murata, currency strategist for Brown Brothers Harriman in Tokyo.
The dollar added 0.2 percent against the yen to 110.57 after brushing a two-week low of 110.25 earlier in the session, while the euro fell 0.2 percent to $1.1265 after rising to a seven-month high of $1.1285.
Slumping Treasury yields also weighed on the US dollar, with the yield on the benchmark 10-year note at 2.169 percent in Asian trading, not far from their Friday low of 2.144 percent, which was their lowest since Nov 10. Net long positions on the US dollar fell sharply in the latest week through May 30 to their lowest since September, according to calculations by Reuters and Commodity Futures Trading Commission data released on Friday.
At the same time, euro net long positions have risen to a more than six-year high, the CFTC data showed, in line with the improving eurozone economy. Sterling shed 0.2 percent to $1.2868. “We’re seeing some position-squaring ahead of the election now,” said Kumiko Ishikawa, FX market analyst at Sony Financial Holdings in Tokyo. “The broader backdrop is that Brexit is going to have many minuses for the UK economy going forward, and these concerns will remain no matter what the shortterm impact is,” she said. —Agencies