Europe
Global growth concerns arising from a drop in China’s trade surplus led to careful trading in Europe on Monday ahead of the European Central Bank meeting this week.
Chinese imports declined more than expected by -12.7% while exports fell by -15% set against predictions of a 12% gain. The trade record trade surplus built up by China in February seemed to evaporate in March. The World Bank added to concerns by lowering its growth forecast for Asia thanks in large part to the slowdown in China.
A weakened euro isn’t enough by itself increase exports from European businesses to China, an important trading partner. Domestic Chinese demand still needs to be there.
UK
A big variation in UK election poll results and a poor performance by the UK’s mining sector hurt stocks on Monday.
A YouGov poll published late on Sunday gave The Labour Party a pre-election lead but results from a poll by The Guardian put The Conservative Party well ahead. These last two polls are a sign of the kind of uncertainty the nation faces. If this kind of divergence keeps up, it’s a real risk to the new record highs being set by UK stocks and the value of the British pound.
The weak China trade balance data is particularly worrying leading into the country’s first quarter growth data expected on Wednesday. Markets will want to see China at least hitting its own, downgraded growth target of 7%. Miners make up a big part of the FTSE 100, so whether UK stocks end higher this week or not may largely rest on Chinese GDP growth.
The FTSE 100 has been on a six-day winning streak that took it five points shy of 7100. The index faltered on Monday under duress from miners as well as home builders which were giving up some of last week’s gains. A broker-downgrade for Barratt Developments (LONDON:BDEV) took the shine off strong results in the sector and a turnaround in property prices.
The M&A-effect was largely missing in UK markets on Monday with news of the big Shell (LONDON:RDSa) / BG Group (LONDON:BG) lock-up largely priced in. It was insurer Aviva Plc (LONDON:AV) that saw any remaining affection on its first day of trading after acquiring rival Friends Life after a number of broker upgrades.
A possible £3bn impairment on sales and property for Tesco (LONDON:TSCO) sent shares down close to 3%
US
US stocks edged higher early on Monday comforted by higher oil prices, expectations that US interest rates will rise later in the year and stock buybacks and dividend increases will boost shareholder returns.
Tomorrow is the real starting gun for earnings season in the US rather than the largely symbolic Alcoa (NYSE:AA) results seen last week. JPMorgan Chase & Co (NYSE:JPM), Wells Fargo (NYSE:WFC), Johnson & Johnson (NYSE:JNJ) and Intel (NASDAQ:INTC) all report first quarter results on Tuesday.
FX
The US Dollar was mostly mixed on Monday ahead of an economic data-deluge this week, which includes inflation, retail sales and industrial production numbers as well as Fed-speakers.
The Australian and New Zealand dollar came in for the heaviest selling as commodity currencies with the biggest links to China, following the weak trade balance data. AUD/USD dropped to beneath 0.76 and just above its multi-year lows while NZD/USD fell through 0.7450 in what could be the first leg of a move back to the lows at 0.72
Commodities
Crude oil rose further on Monday following a drop in the number of US rigs on Friday that suggest production may soon peak. Brent crude was higher amid cracks appearing in talks over the Iran nuclear deal.
WTI crude oil came off its highs around $52 per barrel, with the Feb peak around $54 the major hurdle for strength to be maintained.
Since pulling off the lows in March, Gold has been setting up for a break higher towards $1,300 per oz, but a move above $1225 has become difficult because of recent strength in the US dollar.
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