When it comes to a straight forward challenge on equity prices between economic data, valuation and logic, when the opposition is sentiment there’s only ever one winner – sentiment!
When the sentiment is negative its influence is even more virulent. Such has been the case in the past month, when global equity markets driven by the uncertainty and unreliability of data emanating from China which went hand in glove with falling oil and commodity prices. These factors have driven the Shanghai Composite down 32% in the last 2 months, thus forcing global indices to surrender some value almost daily over the same period. The FTSE has surrendered 11% since April and the DAX and CAC are now only up 3% and 10.5% respectively this year, both having been up over 20% in the past year.
Today is Friday – investors are rather ‘non-plussed’ and rather downcast. The response to the quarterly expiry was pitiful. There was no sign of heavy selling! Market makers have been very light on their feet. There will be ‘short sellers’ out there smiling like Cheshire cats, but the market seems resolved to its plight – sort of waiting for those dealers absent on holiday to return to the fold to help hold the fort. The Street of Dreams made a pathetic attempt to rally early doors, though it was to no avail, with Wall Street’s main indices down by 1.3% at 4.00pm. The FTSE never flickered at the attempted US rally.
There was little sign of blue in any sector apart from property. Even tobacco and utilities were 1% to 1.5%. Mining stocks suffered minimal damage in comparison to the pain inflicted in the 3 previous months; the sector was down 1%. Oils -2%-2.5%, drugs -2%-2.5%, banks and retail all down an average of 2% suffered most of ‘the slings and arrows of outrageous fortune!’ The FTSE has been through 8 consecutive losing sessions. At 4.00pm the FTSE was down 124 points at 6247 and 4.6% down on the week. The DAX was easier by 1.6% and the DAX by 2%.
Both the FED and the BOE can kiss goodbye to any increases in interest rates before December 2015 and the summer of 2016 respectively! It’s going to be a long, hot, sticky weekend! Where will the good news come from? It is hard to see. However this ‘pull-back’ has all the hallmarks of sensible correction. Let’s hope it is nothing more sinister!