FTSE drops on nicotine curb reports and mixed jobs data, USD at 6½-week low

Cigarette companies slide on Biden nicotine proposal

Taking the lead from a weaker close on Wall Street and Asia overnight, European bourses are trending lower, with tobacco companies heading the charge southward.

The Biden administration wants tobacco companies to slash the amount of nicotine in cigarettes to non-addictive levels, which could massively undermine the long-term sales prospects of the large caps. These changes come at a time when tobacco companies are already facing demand headwinds. A 6% drop in British American Tobacco and a 5% decline in Imperial Brands is dragging on the FTSE, despite oil majors and miners advancing on firmer commodity prices.

US futures are pointing to a softer start, extending losses from the previous session. Yet even with this pullback, US stocks remain near record highs. The CBOE volatility index, often referred to as the fear gauge, is ticking higher again, suggesting risk-off sentiment is creeping up. Attention is firmly on US earnings season, with investors looking for confirmation of the private sector recovery. Coca-Cola impressed in the previous session, but the big question is how tech will perform? Netflix kicks off big-tech earnings after the US close today.

FX – US dollar declines despite rising yields

The US dollar is extending its sell-off and has slumped to a 6½ week low versus its major peers, despite yields rising and in a very different reaction to recent weeks. Previously, the US dollar has gained ground as yields rose, but not this week.

Now, as yields are rising, the greenback is grinding lower, which could be a catch-up play from a sharp sell-off in US treasury yields over the last two weeks. Yields on the benchmark 10-year Treasury yields tumbled over 7% across the past fortnight as the Fed calmed nerves that any rise in inflation is likely to be temporary. While the US dollar also fell, we could be witnessing some follow-through selling this week.

The euro is putting in a solid performance, holding comfortably above 1.2050 thanks in part to the weaker US dollar and brightening outlook for the region’s vaccine rollout. Reports that the EU has secured an additional 100 million Pfizer BioTech Covid jabs could well be a game-changer. After a sluggish start, the vaccine rollout is accelerating. This extra boost to supplies could well mean the region’s ambitious target of 70% of adults vaccinated by the end of June may not be far off.

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