Europe
Shares in Europe carried on where they left off on Friday; rising alongside the level of global stimulus as more ECB members come out in support of further stimulus while in the UK deal-mania was keeping investors interested.
It’s a good time to be an exporter in Europe, domestic demand maybe tepid but the threat of further monetary easing from the ECB is rapidly weakening the euro making European goods relatively cheaper abroad and now credit-fuelled demand could pick up in China thanks to a cut in interest rates.
The ECB’s Constancio reiterated on Monday that it’s the ECB responsibility to raise prices in Europe while fellow member Nowotny confirmed the potential need for more stimulus but dampened prospects of new measures before the first quarter of next year.
The UK was beset with prospective deals on Monday with Stryker apparently again renewing interest in Smith and Nephew, BT Group (LONDON:BT) looking to takeover O2 and Glaxosmithkline (LONDON:GSK)’s board is looking for approval from shareholders for its asset swap with Novartis N (SIX:NOVN).
The telecom industry in the UK has been moving in the same direction as the cable companies in the US like Time Warner Cable Inc (NYSE:TWC) who offer phone, cable TV and broadband internet but Virgin Media and Talk Talk Telecom Group Plc (LONDON:TALK) are now taking it a “play” further by introducing mobile into the mix. This is forcing the hand of Vodafone Group PLC (LONDON:VOD) and BT into new industries to compete as customers now expect all their telecommunications from one company.
US
US markets were trading positively again on Monday with central bank stimulus in Asia helping offset the reduction from the Fed which is still expected to hold rates low for a sustained period.
US GDP is expected to be revised slightly lower on Tuesday from 3.5 to 3.2% after exports slowed in September which markets are anticipated to take largely in their stride. Growth in the US still looks strong and now global growth is set to take a boost from what appears to be the beginning of a new easing cycle in China.
One rate cut in China is unlikely to stimulate corporate demand so the strength of the market reaction was to the prospect of a series of cuts and perhaps a slash to bank reserve requirements. The slowdown in economic conditions in China has prompted policymakers to change their mind on stimulus over reform; long term this maybe a mistake as credit gets misallocated but in the short term growth prospects are raised.
FX
The US Dollar was mixed on Monday as commodity selling eased off going into the OPEC meeting on Thursday and the Swiss gold referendum on Sunday.
European currencies were all trading strongly against the dollar buoyed by stronger German business confidence numbers while Japanese, Australian and Canadian currencies were lower against the greenback.
Commodities
Crude Oil prices held steady on Monday with traders monitoring the dialogues between oil-producing nations for a gauge on the likely outcome of the OPEC meeting on October 27th.
Sources suggest Iran will try to convince Saudi Arabia to cut oil output while Russia had talks with Saudi Arabia of which the result was an agreement on oil prices being “market-orientated”. The Venezuelan oil minister has said his country would be willing to cut production should OPEC decide to do so.
Saudi Arabia, the lead oil producer in OPEC have strong ties with the USA; it seems likely that the two nations would have been communicating and discussing pricing and output levels as the US started to increase its own production. If the US and Saudi Arabia have kept lines of communication open since the US increased production, an agreement to cut seems unlikely by OPEC on Thursday.
Even if Saudi Arabia did feel like prices had dropped too far, the market dynamic has changed; OPEC does not control as much as the world oil supply as it once did. Should prices still fall after OPEC make a cut, the cartel’s power would be dramatically undermined.
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