An opening dip on Wall Street is taking the shine off London shares, putting at risk the UK market's six day winning streak.
The Dow Jones Industrial Average is down more than 50 points in early trading, leaving the FTSE 100 dangerously close to negative territory. Having touched 5257 earlier, at the moment the UK's leading index is up just 4.12 at 5221.94. There had been a mood of growing uncertainty during the day following reports - albeit strongly denied - that the IMF and EU were preparing a financial safety net for Spain ahead of a meeting on Friday. Denial or not, there was enough nervousness around that the spread between Spanish bonds and German bunds widened considerably. Ironically many traders are being distracted from the market action by the Spanish world cup match currently being played.
On top of that, the US housing start figures for May were disappointing, falling to a five month low after the expiry of a homebuyers' tax credit. Teunis Brosens at ING Bank said:
The party is over. The homebuyer tax credit was great while it lasted. Now we're back in the harsh reality. Housing starts plunged 10% month on month in May. Excluding the volatile multi-family component, the month on month-fall was a whopping 17.2%.
These data are the first gauge of the housing market after the expiry of the homebuyer tax credit. And a grim picture it is. Prospective buyers rushed to beat the tax credit deadline on 30 April. This has cannibalised housing demand in May, and probably also in later months. We therefore expect homebuilding activity to remain subdued in the summer months. Homebuilders seem to share this view. The NAHB homebuilder sentiment index, published yesterday, slid 5 points. This is the biggest monthly drop since November 2008. Homebuilders apparently do not expect demand to recover soon: The number of single-family building permits issued dropped 9.9% month on month in May, after already dropping 10.3% month on month in April. We expect an eerily quiet summer for homebuilders.
