After a slow start to the week on scant economic data, market participants finally committed to a direction as global benchmark indices slid lower on geopolitical concerns and slightly weaker than expected macroeconomic data. Most major European equity indices headed lower on profit taking while London’s blue chip index spent the entire day under pressure as gains were pared by a stronger GBP. Bank of England Governor Mark Carney’s hint at the prospect of near term tightening of monetary policy. The address at the Lord Mayor’s Dinner last night sent sterling to a 5-year high against the dollar, trading towards 1.6992 earlier on today. The steady gains in sterling put pressure on UK stocks and sent five year government bond yields briefly above 2.11% as they reached their highest levels since September 2011.
Escalating violence in Iraq saw a subdued opening on Wall Street as risk appetite waned and investors took stock of yesterday’s softer economic data. Today’s release of the University of Michigan confidence index, which came in below expectations of 83.0 at a preliminary reading of 81.2 in June, put further pressure on market sentiment, however, both the S&P 500 and DJIA were trading slightly higher at the time of writing but remain on track to end the week lower, both potentially snapping a three week bull run for US markets.
The fighting in Iraq has extended gains for front month Brent futures, last trading around $113.20/bbl after gapping higher at the open this morning and testing levels towards $114.70/bbl early on. After narrowing towards $5 early on this week the Brent/WTI spread has widened towards $6.50 as Brent prices outperform their US counterpart. Both benchmarks have gained support from a weaker dollar index in recent sessions, which pulled back from 80.898 on Wednesday towards 80.650 at the time of writing.