The week has started on a bearish note, with the FTSE 100 falling over 40 points in early trading. The index has lost around 3% since its peak earlier in January, although it has held the breakout line of 7130 that marked its previous high.
The steady deterioration in risk appetite over the past few days nicely bookends the post-election period which began with such furious buying of stocks. Disappointment has set in, but it has not yet turned to disillusionment.
With a hefty slab of the S&P 500 reporting this week we will have a better idea come Friday of whether there are further reasons to cut back on stock allocations.
The housebuilder sector is awash with talk of potential M&A activity, with Bovis in the spotlight as a potential target. The sector could do with a bit of movement on this front, if only to help distract from the ongoing worries about whether house prices will maintain their march higher. If there is to be a bidding way, Bovis is a good candidate, with the recent dip in performance masking what is still a healthy company trading at relatively undemanding valuations.
The US dollar continues its steady decline from the highs of late December, with the fall giving further impetus to rallies in gold, the euro and the yen.
There seems little chance of the trend changing direction ahead of the 1 February Fed meeting, but even then we will need some pretty hawkish rhetoric to put more fight into the greenback.
Ahead of the open, we expect the Dow to start at 19,800, down 27 points from Friday’s close.