Markets hit by wave of bad news

The FTSE 100 fell 89 to 5,964 and the Dow Jones Industrials fell 118 points to 12,264 as worries returned about global economic growth. The DOW industrials fell as much as 150 points earlier in the day with the U.S. trade deficit narrowing in February less than expected. Energy stocks were hit hard with oil (WTI) declining by over $4 to $106 on a Goldman Sachs commodity down grade. Goldman has told clients that with oil at highs on the back of Middle East unrest “the risks are becoming more symmetric”, "with an almost equal chance of further upside than of a correction...not only are there nascent signs of demand destruction..but also record speculative length in the oil market". 

The U.S. Q1 earning season which is key to the direction of global markets started weakly with Alcoa’s results disappointing after the market closed last night and the aluminium producer fell 6% today dragging down the DOW Industrials.  Alcoa’s results proved a final ingredient in a heady cocktail of bad news with high oil prices, continued worries about the Fukushima nuclear plant’s impact on the Japanese economy and worries that inflation is rising in a potentially overheated Chinese economy.

To strengthen the story for the bears the International Monetary Fund (IMF)  lowered its US 2011 GDP growth forecast by 0.2 percentage points to 2.8% and the UK’s from 2% to 1.7% and UK retail sales values were down 1.9% year on year, according to data out from the British Retail Consortium (BRC). On a like-for-like basis, sales were 3.5% lower, against a 4.4% increase in March 2010 the worst fall for 16 years.

On a more positive note,  the consumer prices index (CPI) of UK inflation had a surprise fall from 4.4 percent in February to 4 percent in March driven by a fall in food prices as supermarkets increased discounts. This takes the pressure off the Bank of England to tighten rates above the current 0.5% next month.