The FTSE 100 opened down with National Grid, Shire and Wood Group leading the way, all off by more than 3% in early trading. This followed a torrid US trading session that saw the S&P 500 down 54 points and the Dow shedding more than 500 points, with the DJIA off by 2.11% on the day. The focus seems to be on the US economic numbers and concerns that the US economy is coming off the boil at a time when China may be cooling down as well. Asian markets had a poor time of it: Japan’s Nikkei followed the US lead overnight and gave up 1.7% while Hong Kong’s Hang Seng lost 0.9%.
All eyes on the Fed meeting this week
US stocks are now trading at their lowest level in 14 months and there will be a great deal of focus on the Federal Reserve’s meeting, which starts today, when it is expected that the US central bank will decide to raise rates again. Economists are anticipating that the Fed will hike rates by 25 basis points and it will be surprising if this does not happen. The market has priced this expectation in, but the Trump administration is still lambasting the Fed, arguing that it should keep rates on hold. Bear in mind also that China and other foreign government-level buyers are not signing up to the same levels of US Treasuries as they used to – partly because of the stronger dollar, partly because of political issues. This WILL be a consideration for the Fed – and rates – as the US seeks to auction yet more bonds to overseas investors in Q1 2019.
Trouble in America – S&P 500 and government shut down in focus
While there has been a lot of focus this year on the US-China trade spat, there are now very real concerns emerging over a US slow down. Investors are very aware that the S&P 500 is about to register its biggest single year decline since 2008, and this despite all the optimism earlier in the year. The S&P 500 is now more than 13% off its peak in September.
Also on the agenda is the ongoing wrangle between the White House and Congress over funding for Trump’s projected border wall with Mexico: it is the President this time who is threatening to shut down the Federal government. This could have important implications for the USD, as we once again return to the high noon tactics of White House versus Capitol Hill. The GBP has been strengthening against the USD in the last 48 hours and stood at 1.2652 this morning.
- Fiona Cincotta, Senior Market Analyst at City Index