London View

European markets on the back foot - the third day

European share markets are on the back foot for a third straight day following losses on Wall Street on Tuesday and weaker markets in Asia overnight. Traders are cutting risk ahead of meeting minutes by both the Bank of England and the Federal Reserve and consumer confidence data out of the euro zone.

 

On Wall Street on Tuesday, the S&P500 dropped 0.7%, underpinned by poor numbers from US retailers as well as growing worries about valuations of US stocks. At the same time, traders do reckon that with this bull-market in its sixth year, a correction is warranted and healthy so we can accept fading momentum in the market.

 

This in turn is restraining the upside momentum in equities and pushing markets to government bonds. However, Tuesday’s session saw euro zone bonds selling off sharply amidst worries about the upcoming EU parliamentary elections and the feeling across markets that the European Central Bank may not launch a quantitative easing package next month, instead introducing rate cuts and negative deposit rates, measures which the market does not believe are strong enough action to tackle disinflationary threats.

 

Central bank speak has been very much in focus with William Dudley, president of the New York Federal Reserve, saying yesterday that the Fed should continue buying mortgage-based products even as it starts raising interest rates – a measure which could be positive for bond markets. Later, we will have the Fed meeting minutes which will shed light on how the FOMC voted.

 

Before that, we have UK retail sales and the Bank of England will release minutes of its May meeting, after Tuesday’s higher than expected inflation pushed the pound to a fresh five-year peak on a trade-weighted basis. Out of the euro zone, a report from the European Commission will gauge consumer confidence in the region ahead of tomorrow’s EU elections.

 

Over in Asia, the Bank of Japan concluded a two-day policy meeting by keeping its current level of monetary stimulus unchanged. The BOJ said that the economy was “continuing to recover moderately”, although exports had “levelled off” – that was a boost for the yen currency which rose on the back of the BOJ while the Nikkei225 index declined. Other Asian markets were softer on the whole with geopolitical tensions in Thailand dominating the mood and recent troubling data out of China still very much in focus.