Distress....
UK stocks fell on Wednesday as investors awaited a speech from Federal Reserve Chair Janet Yellen for clues on the timing of the next change in interest rates. Yellen’s speech at the Economic Club of New York Luncheon at 1720 BST will be closely scrutinised as economists search for hints on whether the Fed will raise rates at its next meeting.
While the markets are currently far from convinced that the Fed will raise interest rates again at its April meeting – only 12% chance of a hike priced in based on Fed Funds futures – this could change dramatically this week," said Craig Erlam, senior market analyst at Oanda.
Fed Chair Janet Yellen is due to speak today on the Economic Outlook and Monetary Policy at the Economic Club of New York luncheon and her comments are likely to be followed very closely, especially given the more hawkish tone we’ve had from a number of other policy makers over the last week."
Closer to home, the Bank of England announced tightened rules for mortgage lending to landlords.
The BoE said on Tuesday that risks around Britain's 23 June referendum on its membership in the European Union could push up borrowing costs and weaken sterling.
The Bank revealed measures that will reduce the number of mortgage approvals by 10-20% over the next three years.
Banks will also need have to hold a 0.5% counter-cyclical buffer by the end of March 2017, up from a previous requirement of 0%.
In economic data, Japan saw a mixed batch of reports including an unexpected rise in unemployment, a better-than- forecast increase in household spending and a worse-than-anticipated increase in retail trade.
Standard & Poor′s Case Shiller US home price index rose 5.4% year-on-year in January compared to 5.74% the previous month and analysts' expectations for 5.75%.
The Conference Board’s index of US consumer confidence rose to 96.2 in March from an upwardly revised 94.0 in February. Analysts had expected a reading of 94.
"The rebound in the Conference Board measure of consumer confidence to 96.2 in March, from 94.0, suggests that the rebound in stock markets more than offset the impact of higher gasoline prices in recent weeks," Capital Economics said.
"It also suggests that the apparent slowdown in real consumption growth to around 2.0% annualised in the first quarter should be short lived."
Meanwhile, oil prices were in the red with Brent crude down 3.4% to $38.91 per barrel and West Texas Intermediate down 3.6% to $38.06 per barrel.
On the corporate front, retailer Marks & Spencer was among the risers. Traders said the push higher was a relief rally following losses last week on the back of Next’sresults, which saw the company warn that this year could be the toughest since 2008 amid a deteriorating outlook for consumer spending.
Primark owner Associated British Foods was also in the black following sharp declines after Next’s results.
On the downside, resource stocks suffered the heaviest losses as commodity prices fell.
“Cooper, per last Thursday’s note, has failed to push through the 200 day moving average at $2.27/lb, any break below $2.20/oz would negate the recent rally and put the trend on the back foot” said London Capital Group’s Brenda Kelly.
“Weaker growth in developed markets and word that China is building inventories rather than utilising for construction coupled with the strong dollar would indicate that the 15% gain since mid-January has been built on sand.”
Chilean copper miner Antofagasta was also weighed by a research note from Goldman Sachs, which reiterated its ‘sell’ stance on the stock following the company’s full year results earlier this month.
The FBI has abandoned its attempt to force Apple to help it break into the San Bernardino shooter’s iPhone, after it found another way to access the device’s contents without the company’s help. The move ends a high-stakes stand-off between the iPhone maker and the US government but leaves unresolved the wider issue of how far tech companies should be required to modify their products to aid law enforcement. In their respective statements, the Department of Justice left open the door to future legal clashes with Silicon Valley over encryption and data security, while Apple said it would continue to strengthen the protections built into its devices. – Financial Times
Anbang has fired a new shot in the fiercest bidding war dealmakers have seen in recent years, after the Chinese insurer raised its bid for Starwood Hotels & Resorts to $14bn in its latest effort to trump a rival offer from Marriott International. Starwood said on Monday that it was in talks with Anbang after the acquisitive Chinese insurer sweetened its all-cash offer to $82.75 per share, a non-binding proposal the US hotel operator said it was likely to consider superior to Marriott’s offer. – Financial Times
A “perfect storm” of fears over the state of the world economy, Britain’s place in the EU, and market volatility is gathering over Britain’s dominant financial services sector, according to a new survey. Banks and investment firms have reported the sharpest deterioration in their outlook in over four years in a survey of 104 firms carried out by the Confederation of British Industry (CBI) and accountants PwC. – Telegraph
Savers have withdrawn almost ￡6bn from their retirement funds after the introduction of pension reforms last year. New industry figures show that just over 213,000 cash lump sum payments totalling ￡3bn were made to over-55s since the changes were implemented on 6 April. On top of that, pension firms paid out ￡2.9bn in the form of regular sums to provide an income, said the Association of British Insurers. – Guardian
UK union leaders have held talks in India ahead of a crucial board meeting of steel giant Tata which could decide the fate of thousands of workers. Officials from the Community union had “constructive” talks with senior company representatives in Mumbai, where the board meets on Tuesday. – GuardianConocoPhillips is drawing up plans to shut down one of the North Sea’s biggest gas pipeline systems in a move that threatens to knock out 10 per cent of the UK’s gas capacity and a string of active fields. The US company is locked in talks with the industry regulator about the future of the Lincolnshire Offshore Gas Gathering System, one of 15 big gas networks in the UK section of the North Sea. – The Times
A multimillion-pound Revenue & Customs publicity campaign to stamp out tax evasion and avoidance used an advertising agency ultimately controlled in an offshore haven. HMRC spent more than ￡6 million on the campaigns, including ￡300,000 specifically on offshore evasion. – The Times
European stocks ended Tuesday in the black, though they were still off earlier highs as the markets focused on the US and a speech from Federal Reserve chair Janet Yellen.
At close, the benchmark Stoxx Europe 600 index was up 0.45%, Germany’s DAX was 0.37% higher and France’s CAC 40 was 0.85% firmer.
ENI was in the red after La Repubblica reported that the Italian energy company was discussing the sale of a 20% stake in Egypt's Zohr gas field to Russia's Lukoil.
Pharmaceuticals giants GlaxoSmithKline and AstraZeneca were both higher after drug approvals in Japan.
Low-cost carrier EasyJet flew higher after Bank of America Merrill Lynch upgraded the stock to ‘buy’.
Shares in AG Barr reversed earlier losses to edge higher, after the London-listed drinks maker posted a rise in full year profit but a dip in revenue.
Banco Popolare was weaker after its chief executive told Il Sole 24 Ore over the weekend that half the €1bn capital required for it to merge with Banca Popolare di Milano could be raised through a rights issue and the other half through direct placements to institutional investors.
In US data, house prices in major metropolitan areas rose 5.7% in January according to a fresh release from S&P/Case-Shiller. The rise was in line with recent gains, with inventory remaining low.
The country’s consumer confidence also rebounded in March, with the Conference Board’s reading of 96.2 up from February’s 94.0.
It “suggests that the rebound in stock markets more than offset the impact of higher gasoline prices in recent weeks,” noted Capital Economics US economist Steve Murphy.
Yellen’s speech at the Economic Club of New York Luncheon was due at 1620 GMT. Investors were set to scrutinise Yellen’s words for any policy clues, particularly after the hawkish comments last week from Fed officials.
However, Societe Generale strategist Kit Juckes did not seem to think the speech would provide too many hints.
“Net result, she won’t be much help and we may wait for Friday for economic clues.”
More dovish than expected remarks from Fed chair Janet Yellen, especially when compared to a recent string of remarks from other US monetary policymakers over recent weeks, lent a helping hand to commodity prices on Tuesday.
Speaking to the Economic club of New York, Yellen said: "I consider it appropriate for the Committee to proceed cautiously in adjusting policy. This caution is especially warranted because, with the federal funds rate so low, the FOMC's ability to use conventional monetary policy to respond to economic disturbances is asymmetric.
"One must be careful, however, not to overstate the asymmetries affecting monetary policy at the moment. Even if the federal funds rate were to return to near zero, the FOMC would still have considerable scope to provide additional accommodation."
Front month West Texas Intermediate crude oil futures were down by 2.206% to $38.54 per barrel as of 18:55BST, alongside a decline of 2.39% to $39.33 per barrel in those for Brent.
Both oil contracts had traded lower earlier in the session as traders reacted to a bearish call from Barclays.
"Investors have been attracted to commodities as one of the best performing assets so far in 2016. However, in the absence of any concerted fundamental improvements, those returns are unlikely to be repeated in the second quarter, making commodities vulnerable to a wave of investor liquidation,” Barclay′s Kevin Norrish said in a research report sent to clients and dated 28 March.
Natural gas futures on the NYMEX were up by 2.38% to hit $1.89/MMBtu.
Data released on 24 March by Baker Hughes showed the US rig count fell by 15 to 372 during the latest week.
Gold futures for delivery in June 2016 jumped 1.38% to $1,238.80 per ounce on COMEX.
Spot platinum prices got an even bigger boost from Yellen′s remarks, rising by 2.21% to $966.65 per ounce.
Agricultural commodity furtures were trading in a mixed fashion, with corn futures for delivery in May 2016 up by 0.47% to $372.25 per bushel on the Chicago Board of Trade.
Those for wheat were advancing 1.22% to $476.75 per bushel but the May 2016 CME Cotton#2 contract was losing 0.61% to $57.45 per bushel.
Three-month copper futures traded on the LME were 0.4% lower to $4,911 per metric tonne as of 15:35BST.
Overnight, September 2016-dated iron ore futures on China′s Dalian Commodities Exchange lost 3.4% to 379 yuan ($58) a tonne, with some market commentary referencing a drop in Shanghai traded steel prices.
Foreign exchange markets were very calm ahead of a speech from Fed Chair Janet Yellen scheduled for just a little afterwards in the afternoon.
As of 16:55GMT euro/dollar was edging higher by 0.03% to 1.1199.
Cable was up by 0.18% to 1.4280 and dollar/yen drifting lower by 0.12% to 113.31.
Ahead of Yellen′s remarks, sterling shrugged of a decision by the Bank of England′s Financial Policy Committee to hike UK lenders′ counter-cyclical capital buffers to 0.5% from 0.0% by the end of March 2017.
By some estimates, that would force British banks to hold an extra 5bn pounds in total as buffers, with the the impact on the country′s largest lenders expected to be offset by a reduction in other requirements.
"The relatively timid measures announced by the Bank of England’s Financial Policy Committee (FPC) today underlined that it is set to tread cautiously when implementing macroprudential policy. Accordingly, we doubt that the FPC’s actions will knock the economic recovery off course," analysts at Capital Economics said in a research note sent to clients.
New Zealand′s dollar was the exception to the placid trading conditions in foreign exchange markets on Tuesday, rising by 1.18% to 0.6803.
The greenback was also on the backfoot against the Aussie, as the Australian unit is known in FX markets, with the latter gaining 0.35% to 0.7570.
To take note of, as of Tuesday afternoon traders were placing a probability of an interest rate hike by the Fed at its June meeting at just 33.0%, down from the 46.0% estimated a week ago, according to Bloomberg data.
Figures from the US government published on 28 March revealed that personal expendituers and income unexpectedly fell in February, with a measure of inflation, the so-called PCE deflator advancing just 0.1% month-on-month, leaving the year-on-year rate of change at 1.7% - versus the 1.7% forecast by Capital Economics for the final quarter of the year.