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Friday 21.15 BST. Risk appetite was in retreat for much of the global trading session as JPMorgan’s surprise $2bn trading loss joined economic growth worries and eurozone angst in an unpalatable mix for wary investors.
After a lower opening, the S&P 500 pared almost all its losses before an extra lift was provided by news that US consumer sentiment in early May hit its highest level in more than four years. Still, Wall Street’s benchmark resumed declines to end the session 0.3 per cent lower.
The FTSE All-World equity index fell 0.4 per cent, held back by a 1.1 per cent slide for the Asia-Pacific region. The FTSE Eurofirst fell 1 per cent.
Industrial commodities remained in the red, but closed well off their session lows. Copper was on course for its lowest close since January, but pared some losses to finish down 1 per cent to $3.66 a pound.
The dollar index, usually a product that sports an inverse correlation to risk appetite, reversed earlier losses and closed 0.2 per cent higher, while gold bounced off a low of $1,573 an ounce to trade down 0.9 per cent at $1,579.
Though the rally off early lows was welcomed by the bulls, most advances were meagre and funds were still moving into “safe” fixed income, suggesting a strong undercurrent of caution buffeting many investors.
US and German 10-year yields are off 2 basis points to 1.84 per cent and 1.52 per cent, respectively – the latter only a few basis points above record lows.
Chesapeake Energy fell 16 per cent to touch its lowest level since 2009 at $14.49, after the second-largest US natural gas producer said in a regulatory filing it may delay asset sales needed in order to meet a financing gap.
But the main talking point in the market remained JPMorgan’s trading loss. The sum, in global banking terms, is not massive and the figure must be placed in the context that counterparties will be benefiting from its woes.
Rating agencies had the last word on Friday, weighing in on the bank’s losses by revising its credit ratings and outlook.
Fitch Ratings said it has downgraded the bank’s long-term issuer default rating to ‘A+’ from ‘AA-’. It also cut its short-term default rating to to ‘F1’ from ‘F1+’ and placed the bank’s long-term ratings on “rating watch negative”, which may indicate further cuts. Standard & Poor’s followed Fitch, but affirmed the bank’s credit ratings, while changing its outlook to negative.
But even though the broader market showed some signs of resiliency, the timing is rotten, in terms of investor sentiment – weakened as it already was by macroeconomic and fiscal worries.
A day after Federal Reserve chairman Ben Bernanke said the US economy was starting to benefit from the improved health of the financial system, traders – and, crucially, regulators – have been reminded of the propensity for banks to shoot themselves and the wider market in the foot.
In the short term, that raises questions among investors about what else may lurk in the banking systems’ trading/hedging books. The Bloomberg World Bank index has more than halved session losses but is still down 0.8 per cent.
For the longer term, some investors will fret that such shenanigans only embolden lawmakers in their attempts to neuter the megabanks and that this, according to such free-market reasoning, may hobble future lending and thus economic activity.
Those concerns about global growth have been further fed on Friday by news that China’s industrial output and retail sales expanded less than forecast in April, highlighting the slowing pace of activity in the world’s second-biggest economy. Industrial output in India unexpectedly fell 3.5 per cent in March, too.
Ameliorating that news somewhat was data showing China’s inflation rate falling from 3.6 per cent in March to 3.4 per cent in April, raising hopes that Beijing can risk further loosening monetary policy to spur growth. This was not enough to rescue the Shanghai Composite, however. The benchmark index shed 0.6 per cent.
Finally, analysts are absorbing the details of Madrid’s proposals for bolstering Spain’s banking system, under which the banks will have to find a further €30bn. The Ibex 35 index is losing 1 per cent as investors also worry that Spain may have to deepen its austerity measures to avoid big fines from Brussels.
The mood in the region’s bond complex is cautious, with the yield on Spain’s 10-year note up 2bp at 6.01 per cent. For now, however, the euro is seeing little movement at $1.2940, though this is just 30 pips or so above the session’s near four-month low.
Additional reporting by Jamie Chisholm in London
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