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Oil slides nearly 4% on poor economic data

Risk assets were under pressure almost from the off this morning, following a poor April eurozone services purchasing managers index announced in early trade. The reading of 46.9 was significantly lower than the 49.2 in March, and represented more bad news for the region’s economy.

Sentiment was dealt a second blow in the early afternoon, this time in response to US employment data, with non-farm payrolls increasing 115,000 in April, behind expectations of 160,000. The disappointment was tempered somewhat by some upgrades of previous month’s data, and the general unemployment rate that reduced from 8.2% to 8.1%, although the headlines were still very unwelcome.

Markets were evidently nervous, with the mornings 0.5% falls increasing to around 2% for European indices following the poor US data. Safe haven fixed income was the biggest beneficiary in the risk-off trade, with the yield on the German 10 year government bond (the Bund) falling to a record low of 1.586% (remembering the yield is inverse to the price).Oil suffered significantly, the price of Brent crude falling around 3.6% to $112/bbl. The three month low was triggered by the soft economic data and continuing concerns around high oil inventories, data for which was announced yesterday.The price broke below its 200day moving average, a selling trigger for technical analysts and automatic trading algorithms, accentuating the price falls.

It was also evident that markets were nervous ahead of key European elections this weekend, most notably in France and Greece, and many traders would be apprehensive of keeping open long positions. From polling data it is looking likely that incumbents will be shunned in voter frustration over economic issues and largely German imposed austerity, with uncertain consequences for the European project.

Royal Bank of Scotland reported decent 1Q results and opened up more than 2% higher this morning, before getting caught up in the heavy selling and finishing around 0.3% lower at 24.5p. The FTSE 100 closed down 1.9% at 5655, a surprisingly muted fall given the horrendous picture painted by our pricing screens. Looking at a breakdown of the FTSE 100 constituents, mining and energy stocks were down sharply with falls of up to 6%, and indeed a significant proportion of stocks fell more than 3%. The defensive characteristics of index heavyweights such as Vodafone and HSBC helped mask this underlying trend.

This was posted in Bdaily's Members' News section by James .