European markets slipped lower in morning trade as the rising threat of a US rate hike in June hit confidence whilst the price of oil gave up yesterday’s gains. The suggestion there could be two-three rate rises this year from Fed officials have markets worried that FOMC minutes released later today could be more hawkish than the original statement.

Disappointing results from Burberry and another signal of weakness in the UK economy before the EU referendum in the form of a slowdown in UK wage growth weighed on the FTSE 100. UK unemployment remained at 5.1% but average hourly earnings excluding bonuses slowed to 2.1% from 2.2%

Basic resource stocks were the biggest decliners after two days of being the biggest gainers. The stabilisation of commodity prices has played a big part in the recent run up in markets, so moves up and down in oil prices are necessarily giving commodity-stocks unusually high beta. 

Burberry shares dropped after reporting a second straight year of annual earnings decline whilst also guiding that 2016 earnings were likely to near the bottom of the range. The UK fashion retailer revealed plans to slash costs by at least £100m and raised its dividend by 5%. Reducing the number of product lines and marketing spend is a necessary evil in order to contend with the lower revenues from Hong Kong and Macau. Still, there’s a growing feeling that the initiatives from Chief Executive Chris Bailey are too little too late. Without a change of leadership, Burberry shares may be destined to sink below 1000p for the first time in five years.

Shares of brewer SAB miller and utility company SSE were flat after reporting results

US stocks look set for a mixed open with investors likely to apply caution ahead of FOMC minutes and results from retailers Target, Lowe’s, Staples and L Brands. The retail sector has been taking the brunt of the punishment since US stocks peaked last month amid an ongoing sales slowdown.


USA pre-opening levels

S&P 500: unchanged at 2,047

Dow Jones: 13 points lower at 17,516

Nasdaq 100: 1 point lower at 4,323


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