The mood is darkening among investors as the possibility of an extended conflict increases.
The inevitable strength from the oil majors did nothing to rescue the from another bruising open, with all but a handful of stocks in the red by as much as 6% as investors headed for the exit.
Indeed, given the indiscriminate markdowns across most sectors, there is a growing suspicion that the wall of US money which had been helping to drive the FTSE 100 higher is now being repatriated, very possibly to the dollar. Little more than a week ago, the premier index closed at a record high with the 11000 level moving into touching distance. However, the relentless falls over the last few sessions have dragged the level nearer to 10000 and, while the FTSE 100 remains ahead by 1.7% so far this year, there is no immediate or obvious catalyst in view to arrest the declines. In addition, the has now erased all gains in the year to date to stand 2.2% lower, unable to withstand the additional pressure of a weakening domestic economy.
Meanwhile, the main US indices ended the week sharply lower again, as traders de-escalated their risk positions ahead of the weekend. As it turns out, this proved to be a wise move, since further targeted attacks resulted in a surge in on Sunday by as much as 30%, and even though the price has since moderated, it remains comfortably above the perceived pain point of $100 per barrel and up by 75% in the year to date.
With the Strait of Hormuz effectively closed for traffic, and with further cuts to production coming from Kuwait and Iraq, the supply shock is truly reverberating and, if left unchecked, will likely lead to a global economic slowdown. The possibility of stagflation – a toxic mix of slowing growth and rising inflation – or even recession are currently on the minds of increasingly concerned investors.
Adding to the confusion was a set of figures which confounded expectations, with the expected addition of 50000 jobs in February actually coming in at a loss of 92000, and with the ticking higher from 4.3% to 4.4%, leaving the Federal Reserve between a rock and a hard place. With previous downward revisions signalling a weaker jobs market, the Fed would usually be on alert to reduce , but with the wider situation implying higher inflation they may find themselves hamstrung.
US markets will have their first opportunity to react to the weekend’s developments when they open later today, and at this early stage another ugly open is on the cards, with losses of up to 2% across the indices currently suggested by . This would add to what is becoming an increasingly challenging year so far, with losses of 1.2%, 1.5% and 3.7% for the , and , respectively.
Asian markets provided little succour overnight, as most succumbed to the negative momentum of sentiment. In addition, those countries perceived to have a particular reliance on imported energy were worst hit, with a loss of over 5% for Japan’s index typical of the losses across the region.