On Wall St overnight, US stocks retreated sharply from the opening bell as the euro slid to a new four-year low of 1.2159.
This followed after Germany announced it would introduce a temporary ban on naked short-selling and naked credit-default swaps of euro-area government bonds.
The NASDAQ was the worst performer, down 1.6% while the broad-based S&P 500 fell 1.4% and the Dow Jones Industrial Average lost 1.1%. It was an all round sector sell- off with 91% of companies closing down on the day, interestingly from the close of the FTSE the S&P dropped 1.8%, and hence we should see European markets opening the session sharply lower.
The bans from Germany have really spooked the market. By implementing these short-selling bans, it is scaring people into selling the only legitimate security left, which is the euro. If you’re bearish on the region you’ve got very few other choices but to sell the euro. Only a few days ago, the Europeans were telling the world how aggressively they would protect their currency.
Equity traders continued to take their cues from the euro overnight, with the sell-off in equities reflecting the sharp fall against the dollar and yen during the US and Asian session. The euro’s half-hearted attempt to move higher (1.2444) was quickly seen as a selling opportunity, with the euro slumping to 1.2144 in early Asian trade, a fall of 2.4%. The European bailout, which was designed to save the euro has certainly not convinced forex traders.
In Asia, regional markets are mostly lower following the Germany’s short-selling announcement. As at 06:00, the Kospi is the biggest decliner, weaker by 1.3%. The Hang Seng is down 1.1% and the Nikkei 1.2%. The Shanghai Composite is bucking the trend, up 0.3%.
Therefore Asian market are providing no real inspiration for European traders who really do not have much in the way of positive news-flow to reflect on. For today, Bank of England meeting minutes will prove of interest in light of yesterday’s bumper UK inflation figure, whilst this will be followed by US CPI data later. In terms of earnings, London sees numbers from the likes of Mitchell & Butler, Experian and ICAP, whilst in the US, Target continues the run of numbers from the retail sector.
Ahead of the open we’re calling the FTSE down 85 at 5222, DAX down 61 at 6083 and the CAC down 87 at 3530.
