10th Jul 2014 12:11
LONDON (Alliance News) - US stocks are set to follow their UK and European counterparts significantly lower Thursday, with European indices having extended their morning losses amid growing concerns within the banking sector after Portugal's largest listed bank, Espirito Santo, suspended its shares due to problems over a bond payment.
Stock markets in Europe were already suffering a heavy sell-off in the midst of some disappointing economic data from across the eurozone and the worries in the banking sector have only served to add to the losses.
Ahead of the US market open, the FTSE 100 is trading at a near three-month low, down 0.8% at 6,664.52, while the FTSE 20 is down 1.1% at 15,374.39, and the AIM All-Share is down 1.0% at 770.97.
The French CAC 40 and the German DAX are both suffering heavy losses, down 1.5% and 1.4% respectively.
The US markets look set to follow significantly lower and more than wipe out the modest gains made on Wednesday after the minutes from the latest Federal Reserve policy meeting maintained a dovish tone. Futures trading indicates that the DJIA will open as much as 150 points lower and the S&P500 will suffer a similar percentage fall to open 15 points lower.
The European banks are under particular pressure in the current environment, caught between a rock and a hard place with a central bank that is so desperate for them to lend that it has introduced negative interest rates, while also having to hoard capital to weather stress testing.
"With tougher capital requirements, it means banks need to keep more money in reserve and can?t lend it out and make returns," explains CMC Markets market analyst Jasper Lawler. "This problem is exacerbated in Europe where weak economies are not generating demand for banks loans in the first place."
The latest news from Portugal, sparking fears of another debt crisis within the eurozone, is weighing heavily on the European banks Thursday and the UK names are also providing a drag. Barclays is trading at its lowest level since October 2012, down 3.2% Thursday, while RBS is down 2.0% and HSBC is down 1.5%.
"Barclays give the impression they?re at forefront of all the market manipulation stories- the latest one being the ?dark pool? fiasco," says CMC's Lawler. "Investors are just not appreciating the uncertainty when you never know what scandal is around the corner."
Elsewhere in UK equities, the precious metal miners are continuing to provide a little support on the back of a spike in both gold and silver which both trade at near four-month highs after breaking out through technical resistance earlier in the session. Ahead of the US open, gold is quoted at USD1,340.91 per ounce, and silver is quoted at USD21.414 per ounce.
Randgold Resources, Fresnillo, and African Barrick Gold are all amongst the biggest gainers, up 2.0% 1.7%, and 2.7% respectively.
Tesco is outperforming the falling market, up 0.4%, on the news that it has poached Marks and Spencer Group's Chief Financial Officer, Alan Stewart. Stewart will fill the boots of Laurie McIlwee, who stepped down as Tesco's chief financial officer earlier this year to "pursue new opportunities."
The Bank of England has kept the UK base rate of interest on hold at 0.5%, and also maintained its stock of asset purchases at GBP375 billion. While the decision came as no surprise to the markets, there will be a heightened focus on the release of the meeting minutes on July 23 due to the recent hawkish shift in the tone of BoE officials, as well as the fact that there are new members on the panel this month that voted Thursday for the first time.
"The voting unanimity at the BoE in recent months may be hiding bigger disagreements behind the scenes," said Berenberg Chief UK economist and former BoE official Rob Wood. "The minutes of today?s meeting, due in two weeks, will be key for judging how the consensus is changing."
Still to come in the data calendar Thursday, weekly US initial jobless claims will give the latest indication on the US labour market since equities peaked late last week in the wake of the strong non-farm payroll report. Analysts are expecting 316,000 claims in the week ended July 4, up fractionally from the 315,000 new claims in the previous week, with the numbers due at 1330 BST.
Wholesale inventories data will also provide some interest at 1500 BST, with economists expecting a dip to 0.6% in May from 1.1% in April.
After the European close there are speeches from Federal reserve officials Esther L. George at 1815 BST and Richard Fisher at 2130 BST. Both speeches will be watched for any deviation from Wednesday's meeting minutes.
By Jon Darby; [email protected]; @jondarby100
Copyright 2014 Alliance News Limited. All Rights Reserved.
Related Shares:
TescoMarks & SpencerRandgold ResourcesFresnillo