Europe
A cut in the reserve requirement ratio of 1% for major Chinese banks prompted a bounce back in European markets on Monday, recovering from the worst week this year. There is optimism that the measures will free up capital for lending and help reignite growth in China and globally.
The People’s Bank of China cut the reserve ratio by 1% to 18.5%. Another cut at some point had been widely expected given the slowdown in China, but 100 basis points is the biggest single cut since the 2008 financial crises. The move wasn’t enough to allow Chinese markets to end in positive territory with investors in the region still reeling from regulatory changes on margin trading on Friday.
The unlikelihood of a deal being struck between Greece and its creditors has sent short-term Greek bond yields to new record highs again on Monday. For now Greece’s troubles are contained within Greek markets but once the positive sentiment from Chinese stimulus has worn off, other European markets may follow suit closer to the Eurogroup meeting on Friday.
UK
UK markets traded higher on Monday led by miners BHP Billiton (LONDON:BLT) and Anglo American (LONDON:AAL) as well as Asian-orientated banks HSBC (LONDON:HSBA) and Standard Chartered (LONDON:STAN), which all benefitted from the prospect of Chinese government stimulus improving growth in the country.
Also helping sentiment was a report from Ernst and Young’s ITEM club with one of the highest forecasts for UK growth over the next three years. The think tank believes the UK economy will take the general election in its stride thanks to ‘noflation’ and a recovery in the Eurozone.
Shares of Intercontinental Hotels were top risers on speculation of a merger, with the company having supposedly already turned down an offer from an unknown US bidder who may return with a higher bid.
Shares of Lloyds (LONDON:LLOY) bucked the generally positive trend in UK banks, trading slightly lower on the UK Chancellor’s announcement of incentives for the general public to buy them. If the Conservative Party won the general election, it would offer Lloyds shares for sale to the public at a 5% discount and offer extra stock to those who hold them for a year.
Tesco (LONDON:TSCO)’s and Sainsbury’s shares were trading lower ahead of Tesco’s earnings this week.
Petrofac (LONDON:PFC) shares saw heavy losses on Monday after the company said its troubled Laggan-Tormore gas plant is going to cause the company further losses. Industrial action and adverse weather conditions has left the project behind schedule. This forced the oil services company to get directly involved in construction which increased its operating costs.
Shares in payday lender Wonga have dived ahead of what is expected to be a large loss and revenues down by a third; following an industry crackdown and reimbursement to customers it sent letters to from fictitious law firms.
US
Stimulus from China’s central bank and a round of impressive earnings results helped US equities rally on Monday, in early trading the Dow Jones Industrial Average was close to erasing all of Friday’s losses.
Top and bottom line earnings from Morgan Stanley (NYSE:MS), Hasbro Inc (NASDAQ:HAS) and Halliburton (NYSE:HAL) all came ahead of expectations. IBM (NYSE:IBM) is reporting after the close.
FX
US Dollar was mostly stronger on Monday, mostly as a result of easier monetary policy in China increasing the distance between the policy of possible tightening from the Federal Reserve.
The euro traded lower despite comments from ECB President Mario Draghi over the weekend that there is “no point in shorting the euro” after German PPI fell further into deflation than expected.
Broad-based dollar strength sent the British pound lower versus the dollar ahead of minutes from the last Monetary Policy Committee meeting on Wednesday.
Falling Gold and industrial metal prices saw the Aussie come in for some the biggest losses despite stimulus measures undertaken in China that could improve demand for Australian exports.
Commodities
Oil prices were volatile on Monday bouncing between being down over 2% and up over 1% ahead of reports from the American Petroleum Institute and inventories data this week that will either confirm or deny the trend of slowing US production.
Copper dropped over 2% on news of a Chinese property developer going into bankruptcy signalling major problems in the country’s housing market, a major source of copper demand.
Gold and silver traded lower, negatively correlated with higher equities and the US dollar.
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