Europe
A plunge in Chinese shares led to cautious trading in Europe where economic reports were few and far between and US markets were closed for Martin Luther King Jr Day.
Monday’s caution comes ahead of the key policy meeting from the European Central Bank where many have ECB President Mario Draghi pegged to announce full blown quantitative easing to resuscitate the Eurozone economy.
The only real catalyst for a positive bias to equities came from a comment by IMF leader Christine Lagarde that any QE program by the ECB should spread as much risk as it can amongst its members.
Regulators in China have banned three of the top brokerages in the country from opening new margin accounts for three months as well as issuing new rules on entrusted loans, part of the country’s shadow-banking industry.
The Chinese stock indices are some of the least correlated with the rest of the world so there is not a direct read across from the tighter regulation on margin trading into European stocks. The bigger concern comes at 2am GMT Tuesday and the announcement of Chinese fourth-quarter GDP. Many expect the China GDP report could miss the 7.2% expectation leading to a miss of the government’s 7.5% annual growth target.
Should Chinese GDP miss expectations that will further feed into the narrative of slower Chinese growth contributing to a global slowdown in demand for commodities such as oil and copper and by implication could pressure global stock indices especially the resource-heavy FTSE 100.
Another broker-upgrade today helped propel Tesco shares higher supporting an increasing number of calls that Tesco may have found a bottom after its profit misstatement scandal.
Dixons Carphone was topping the UK benchmark share index ahead of its third quarter figures released on Wednesday in which the retailer will reveal the impact of Black Friday discounting on its holiday sales figures. Black Friday has been raised as an issue by John Lewis, Game Digital and Argos so it’d be a coup for Dixons Carphone if they managed to make it work for revenues without cutting into profit margins.
US
US markets were closed for MLK day.
Earnings start in full force again tomorrow with reports from Morgan Stanley, Johnson & Johnson, Advanced Micro Devices Inc (NASDAQ:AMD), Baker Hughes Incorporated (NYSE:BHI) and Halliburton Company (NYSE:HAL).
FX
A lack of economic drivers meant the US dollar was mixed on Monday.
The Swiss franc is starting to stabilise in a new range against major currency counterparts after its monumental appreciation on Thursday. EUR/CHF is now trading between 0.97 and 1.06.
Denmark cut deposit rates further into the negative on Monday after the currency appreciated to its highest level against the euro in ten years. The cut is an attempt by the Danish government to discourage flows into the Krone that have increased since the euro has started losing value.
Watch out; the Danish krone maybe about to go Swiss-style.
Commodities
Gold and silver prices were flat after recent gains and may well stay fairly balanced until the ECB press conference on Thursday that could trigger a bigger move into non-fiat assets if large-scale money-printing is announced.
Copper prices dived again ahead of a spate of Chinese data on Tuesday including the GDP report for the fourth quarter. Depending on the results of the report, there is some speculation that President Xi Jinping may downgrade the 2015 growth forecast to 7.0%.
Oil prices fell after Iran’s oil minister denied any plans for an emergency OPEC meeting. The price of Brent and WTI crude closed higher last week so it’d be an odd time for OPEC to decide to cut production.
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