A renewed, deep, sell off on Wall Street and in Asia overnight ensured a heavy drop was on the cards for European bourses this morning. The Dow Jones plunged over 1000 points for the second time this week, whilst the S&P tumbled some 3.8%.
Both indices are in confirmed correction, whereby they have fallen over 10% from the recent high, which was just 2 weeks ago as concerns over rising interest rates continue to spook the market.
Concerns over a rising interest rates were exasperated in the previous session after a more hawkish than expected Bank of England could look to hike rates as soon as May and after a solid jobless claims report, which unexpectedly dropped by 221k, reinforcing the tightening of the US labour market which is often a precursor to raising interest rates.
European stocks have the advantage
Interestingly the selloff in Europe is less exaggerated than that in the US and that is because in Europe we continue to see dividend yields outpacing government debt yields. Meanwhile that dynamic is reversing at a rapid rate in the US which is not working in the favour of US equities despite solid economic data and a strong earnings outlook.
Trinity Mirror rallies 10%
In corporate news Trinity Mirror is a standout performer rallying over 10% on the open after agreeing to buy all of Richard Desmond’s Northern & Shell publishing assets. The owner of the mirror will pick up the Daily and Sunday Express and the Daily Star following the conclusion of talks which began in the Autumn. There is a lot of sense behind this deal, which comes at a time when print advertising is falling at Trinity Mirror. There are significant commercial synergies which are expected to result in some serious cost savings going forward.
GBP/USD in focus ahead of a barrage of UK data
In the forex market the pound id seen on the front foot ahead of a slew of economic data later this morning. GBP/USD rallied to a high of $1.4066 in the previous session following a more hawkish than expected BoE. Strength in the dollar in the US session mean the pair were unable to hold onto all the gains and GBP/USD slipped back below $1.40. Industrial production, manufacturing and construction output are all due for release this morning.
With the BoE hinting that it could look to raise interest rates as soon as May, the markets will want to see solid economic data prints to confirm that the UK economy can sustain a hike so soon. Any signs of weakness could see the pound drop back below $1.39, before heading towards support at $1.3875. On the up side the bulls will keep $1.40 as a near term target.