Dashed hopes of a Russian-OPEC joint oil production cut has sent oil prices to the lowest in a week and investors are reaching for the risk-off button.

The high beta mining sector is leading the declines on the FTSE 100 with BHP the worst performer as shareholders continue to jump ship after its divi cut announced on Tuesday. Every sector on the FTSE is in the red in a broad based decline. Defensive healthcare stocks are the best of a bad bunch.

Barratt Developments reporting a 40% rise in half-year profits and a strong start to the year has given housebuilders a lift, with shares of Persimmon top of the UK benchmark. Low mortgage rates and a generally healthy British economy means the demand is still there for housing and the government appears determined to address the country’s housing shortage.

The housebuilding sector was one of the worst hit by the Boris-effect on Monday. A British exit from the Eurozone and any resulting cap on immigration could have an especially negative impact on the UK construction industry which employs a higher than average number of immigrants. The concern is that with unemployment at multi-year lows and skills shortages unlikely to be plugged quickly unless by immigration, the ability of housebuilders to build the houses required could be constrained and limit earnings growth.

The Brexit threat is plain to see in the British pound which has dropped off a cliff to reach its lowest in seven years. A drop in the pound is in general a good thing for UK exports but that’s only insofar as it boosts competiveness abroad. That isn’t so much the case if it’s dropping over fears Britain could sever trade ties by leaving Europe.

A strong pound has long since been a drag on UK prices as we import low inflation from the Eurozone. Should the UK vote to remain in Europe, the inflationary pressures from a weaker pound could prompt a rate hike from the Bank of England a lot sooner than currently priced by markets.

US stocks look set for a lower open in line with weak European trading as oil prices fall.


USA pre-opening levels

S&P 500: 16 points lower at 1,905

Dow Jones: 123 points lower at 16,308

Nasdaq 100: 37 points lower at 4,125


CMC Markets is an execution only provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.