UK and Europe
European markets maintained early gains in afternoon trading after ECB President Mario Draghi talked up the prospect of further easing in March amidst talk that the central bank could buy securities backed by bad Italian bank loans. Closed US markets acted to dim volatility.
No severe sell-off in Chinese markets after a week’s holiday and a massive rally in Japan allowed financial stocks to break out of the doghouse and lead Europe’s major indices higher, buoyed by HSBC’s decision to stay in London.
Mr Draghi reiterated the possibility of further rate cuts or changes to the asset purchase program saying “The Governing Council will review and possibly reconsider the monetary policy stance in early March”. The ECB has do far avoided cutting the main refinancing rate into negative and if the market reaction to the Bank of Japan is anything to go by, it would be best keeping it that way.
The ECB president addressed the sell-off in European banking shares, admitting there is a sub-set of banks with elevated levels of non-performing loans but said the Euro area is in a good position to reduce bad loans. There were some signs that the market may force the ECB away from negative interest rates because of the negative impact on banks. Mr Draghi said the ECB would “analyse the state of the transmission of our monetary policy impulses by the financial system and in particular by banks.”
Given the growth slowdown in China, signs of rising political discontent in Hong Kong and the change to the UK bank levy, it’s not at all surprising that HSBC have decided to stay in London. HSBC have clearly decided a British exit from the Eurozone would not have enough of an impact on the business to warrant delaying the decision until after the referendum. In all likelihood, the whole discussion of a relocation was just a very public statement of discontent from HSBC over the bank levy.
HSBC was one of the more modest risers amongst financial shares following the news it's staying put in London, though its Asian focus meant it was one of the most stable during last week’s European bank sell-off.
Reckitt Benckiser (L:RB) rose after reporting a rise in fourth-quarter profits and like-for-like sales that beat estimates. Gold miners Fresnillo (L:FRES) and Randgold (L:RRS) were propping up the UK benchmark as the price of gold slid over 2%.
US
NYSE and Nasdaq closed.
FX
Amidst a vacuum of economic data, the US dollar was mostly stronger on Monday, with only the Australian and New Zealand currencies gaining alongside commodities despite disappointing economic data from China.
The euro edged lower versus the dollar and the pound as the €500 banknote gets pulled from the system and ECB president Mario Draghi reiterated the central bank’s commitment to reassessing monetary stimulus in March. EUR/USD dropped beneath 1.12 while EUR/GBP hit a 1-week low near 0.77.
Commodities
The price of crude built on its massive double-digit rally on Friday with CFTC data showing the biggest number of speculators long since June. The fundamental issue of oversupply remains as US and Chinese stockpiles are getting close to capacity. Data from China shows imports declined in January as state refiners pulled back from record imports in December.
The price of gold lost over 2%, sliding $30 beneath $1210 per oz as investors pulled out of havens amidst a rally in stock markets. The move was not exclusive to gold, with the Japanese yen and government bond prices also falling.
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