One week of markets in one minute: Central bank jitters, nukes, and sliding shares

A series of key meetings for central banks this week – including the monthly update from the European Central Bank – combined with weak economic data, panic over North Korea’s nuclear test, and struggling commodity stocks to push markets into the red for the week.

Looking at the UK the FTSE 100, which had been edging lower most of the week, capitulated more dramatically on Friday, closing down 1.2% at a week-low of 6,776 points.

The index was dragged lower by commodity stocks, with BP and Shell off 1.5% and 0.9% in reaction to sliding oil. Brent crude, which had touched $50 a barrel Thursday after surprising data showed a huge fall in US crude supplies, fell back once more on Friday, taking the mega-cap oil names with it as investors took profits.

The FTSE 250 followed its large cap peers lower, the index down 1.6% at 17,894 points, also at its lowest level since last Thursday, as a general malaise set in.

Overseas, Europe also succumbed, with the warning from the European Central Bank yesterday that it is losing the fight against deflation – and downgrading growth forecasts – all adding to the dismal mood. Coupled with concerns in the US over the growth outlook, it was enough to take shares lower, with the German DAX down 0.95% Friday to also end the week in the red.

The US itself fared no better, with the S&P 500 down more than 1% on the week at 2,149 points on Friday shortly after London closed.

What needs to happen to inject some oomph into markets? Adrian Lowcock, investment director at Architas, said many markets have too many question marks hanging over them, especially when trading near record highs.

“Economic data in Europe is uninspiring, the US looks increasingly unlikely to raise rates, and investors are now asking if monetary policy is not working, what comes next,” he said.

“It makes some equity markets look vulnerable, and therefore we are seeing some profit-taking.”

Man GLG portfolio managers agree, adding: “As we begin to reach the conventional (and even unconventional) limits of monetary policy, the likelihood of a policy misstep increases. Investors will well recall the 2013 Taper Tantrum – past memories such as these might give pause for thought in the present.”

Even bondholders are getting nervous post the updates from central banks. 10-year bund yields climbed out of negative territory after the ECB confirmed it did not discuss extending its asset purchase programme at the latest meeting, while 10-year gilt yields have also climbed well off lows, with the ten-year now yielding 0.86%.

Confidence in central banks’ ability to pull economies out of their slump appears to be fading, and it could be time to reach for those tin hats.

The Brexitometer

In the wake of the crisis, and in order to provide a quick and easy snapshot of the real impact of Brexit on markets, we will be updating the Brexitometer weekly, detailing the impact of the EU referendum result on UK markets.

FTSE 100: UP 6.9%

6,338 points at close on 23 June.

6,776 points at close on 9 September.

FTSE 250: UP 3.2%

17,334 points at close on 23 June.

17,894 points at close on 9 September.

FTSE All Share: UP 6.4%

3,481 points at close on 23 June.

3,701 points at close on 9 September.