Gloomy economic outlook prevails

The FTSE 100 has struggled in early trading, falling sharply as big mining stocks drop back, but the malaise is wider than that, with other European markets falling as well.

• Worries about economic rebound hit stocks.

• UK-listed miners come under pressure.

• BoE’s caution fails to hold back sterling.

European stocks are falling back in early trading as the hopes of progress on a fresh US stimulus bill begin to fade, while concerns rise about the pace of the jobs recovery in the world’s largest economy in the wake of yesterday’s ADP employment report. Investors have become increasingly concerned that, having struggled to develop a coherent response to the virus itself, the US will now fumble its plan to save the economy. Having enacted an effective support programme for workers earlier in the year, the US now risks worsening the recession as millions more find themselves unemployed and without income. In such an environment, equities in all geographies look vulnerable to a correction, having rallied in no small part on the assumption that government largesse would continue.

With a couple of heavy-weight names like Rio Tinto going ex-dividend today, it is not going to be a day of huge gains for the FTSE 100. But the losses go deeper than that, and speak to a deeper worry about the outlook for economic growth. Firms like Glencore and Rio Tinto have seen huge rebounds from the March lows, but look vulnerable as the recovery begins to slow.

The Bank of England’s decidedly mixed outlook for the UK economy has not provoked any soul-searching on behalf of sterling bulls, with Cable still rising. Once again it looks like the market is focusing on the good news and ignoring the data that points to a sharp contraction in Q2. While the bank has upgraded some of its forecasts, it is right to expect a long-haul recovery that will take plenty of time to play out.

Ahead of the open, we expect the Dow to start at 27,201, unchanged from Wednesday’s close.