Europe
There’s no snow in London but lower Oil prices, the threat of deflation in Europe and a possible Greek exit from the Eurozone saw markets start the first full business week of the year on thin ice.
Stock markets in Europe traded down alongside tumbling oil prices. The losses from oil companies outweighed the gains in the travel and leisure sector and weak German inflation data threatened to derail the recent recovery.
The inflation rate in Germany fell to 0.1% in December from 0.5% in November. The German DAX interpreted the inflation data badly despite the increased likelihood of the ECB beginning QE if Germany and the rest of Europe slip into deflation.
Perhaps in a bid to ease concerns amongst some of Greece’s institutions, Syriza have stated their policy is not to leave the Eurozone, but perhaps they should reconsider. Greece’s debt burden as a proportion of GDP has reached the point of no return. The solution for Greece has to be debt forgiveness or leave the Eurozone and bring in a substantially lower valued Drachma. The German electorate are unlikely to reward Angela Merkel with re-election if she’s seen to be rewarding the perceived excesses of Greece. If German debt relief looks unlikely that just leaves Grexit.
The FTSE 100 was dominated by commodity prices on Monday. The rally in gold back to $1,200 per oz put Randgold Resources (LONDON:RRS) at the top of the index but Brent crude below $54 per barrel and copper prices at four year lows meant Weir Group (LONDON:WEIR), Glencore Xstrata Plc (LONDON:GLEN) and Bhp Billiton (LONDON:BLT) hugged the bottom.
US
US markets extended losses on Monday as Exxon Mobil (NYSE:XOM) Corporation (NYSE:XOM), Chevron Corporation (NYSE:CVX) and Caterpillar Inc (NYSE:CAT) dragged the Dow Jones Industrial Average lower leading up into a data-packed week including minutes from the latest Fed meeting out Wednesday and Friday’s December employment report.
December auto sales were released on Monday. Fiat Chrysler Automobiles NV (NYSE:FCAU) saw sales jump 20%, General Motors Company (NYSE:GM)19% and Ford Motor Company (NYSE:F) 1.2% as US consumers show enthusiasm for big-engine SUV’s following the big drop in oil prices.
Amazon.com Inc (NASDAQ:AMZN) may be losing money for now but it seems bent on world domination with its revenue growth. The online retailer announced its sellers sold more than 2bn products worldwide in 2014.
Rather than competing with Apple Inc (NASDAQ:AAPL)at the high-end, Microsoft Corporation (NASDAQ:MSFT) is taking on budget Asian mobile manufacturers. The company has released an internet-connected phone under the Nokia brand that will cost only $29.
FX
The US dollar was king again today ahead of Fed minutes and NFP data expected to reiterate the divergence between the US economy and the rest of the world.
Disappointing construction data following a slowdown in manufacturing on Friday meant the British pound was one of the biggest fallers. GBP/USD fell to 17 month lows.
Having crashed over 100 pips overnight, the euro recuperated a little on Monday. The prospect of deflation leading to euro-printing added to political risks emanating from Greece mean euro-gains seem unlikely to last long.
Commodities
Data that Russia is pumping the most oil since soviet times and Iraq it’s highest since the eighties are reinforcing the story of a global supply glut. Crude oil prices slid as much as 4% with WTI approaching $50 per barrel.
Gold regained $1,200 per oz on Monday as safe-haven plays drew demand while the threat of ECB balance sheet expansion has helped it hold above the November lows.
Silver has found interim support at $15.50 per oz; a move lower could push the metal back to multi-year lows but the large reversal on December 1 still supports the case for a sustained move above $17
Copper prices were trading at 4 year lows again having fallen back through $3 per lb ahead of Chinese services data.
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