UK and Europe
A drop in the US dollar and a jump in the price of oil helped stocks build on morning gains on Monday after China reported a slowdown in producer price inflation. The gains come at the beginning of what promises to be a busy week of US corporate earnings, Chinese economic data, IMF forecasts and culminating in the oil producer meeting in Doha.
A moderation in Chinese producer inflation prompted early optimism that China is successfully fighting its economic slowdown whilst unchanged consumer prices left the door open to further rate cuts from the PBOC.
Worries over China’s economy have been side-lined thanks to the stabilisation of the yuan and reduced capital outflows. Trade balance data which is reported on Wednesday followed by GDP, industrial production and retail sales on Friday will add more colour to China’s outlook.
A meeting of Italian banks, the Bank of Italy and government agencies ahead of the creation of a rescue fund lifted banking shares across Europe. If the fund can bring in outside investors as stakeholders and even issue its own bonds then it’s chances of success will be greater than the kind of government bailouts that have failed to turn things around so far.
Homebuilders and healthcare stocks weighed on the FTSE 100, which underperformed markets on the continent despite mining company shares gaining after rosier Chinese inflation data.
Shares of the Daily Mail Trust (LON:DMGOa) responded with modest gains to the prospect of the media group bidding for Yahoo's (NASDAQ:YHOO) internet business. The Daily Mail is still in early talks and is likely just exploring options on how to expand further into the coveted US market. The Daily Mail is already the English-speaking world’s most popular news website so it’s not clear what it would have to gain from spending upwards of $10bn on a failing search engine.
Shares of Tesco (LON:TSCO) gained over 1% ahead of its annual results this week.
US
US stocks opened higher, helped by a drop in the dollar and bounce in the price of oil ahead of the official kick-off of first-quarter earnings season with Alcoa (NYSE:AA) reporting results after the closing bell.
Energy sector earnings are expected to slump over 103% year-over-year according to Reuters and are a major drag on US corporate earnings season. The energy sector earnings decline should moderate each quarter this year, but the sooner oil prices normalise, the quicker profits can recover.
FX
The US dollar was mostly weaker on Monday. The Japanese yen was the only fallen versus the dollar in the G10 as traders covered USD/JPY shorts after the pair dropped over 500 pips in the last two weeks.
The speed of the ascent in the Japanese yen will put markets on high alert for intervention from the Bank of Japan this week. Markets are calling the bluff of the Bank of Japan. The yen closed higher on Friday in a direct challenge to Japanese officials who had earlier in the day verbally intervened. With USD/JPY at 108, relatively strong by recent historical standards, the Bank of Japan faces a strong risk of failure by jumping the gun. Unless there is a sudden drop below 105 in the early part of the week, the BOJ will likely hold back on directly selling yen in the market.
Commodities
The price of oil challenged its 2016 peak after reversing small early losses to as sentiment continues to improve after data from Baker Hughes showed the number of active rigs in the US dropped for the 15th time in 16 weeks. The drop in the rig count according to the IEA matches data showing US production slowed for the 10th time in 11 weeks.
Markets are looking through additions to the supply glut by OPEC’s second biggest producer Iraq ahead of the producer meetings in Doha. There appears to be a lack of conviction to sell ahead of next week’s producer meeting in case somehow Saudi Arabia and Russia can pull an output freeze out of the hat.
Precious metals were in demand as the price of gold moved as much as $10 higher to take out $1250 per oz whilst silver jumped over 2% to a two-week high.
DISCLAIMER: CMC Markets is an execution only provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed.
No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.