UK & Europe
There was a mixture of gains and losses across European markets on Monday. Stocks in the UK were bolstered by strong data and a weaker British pound whilst a weak open on Wall Street and choppy oil prices weighed on the rest of the continent. The German stock market was closed ‘German Unity Day’.
Hopes that Deutsche Bank (DE:DBKGn) would receive a lower Department of Justice fine over the weekend were dashed when no such agreement was reached. A fine in the region of $5bn from the DOJ would not be a great result for Deutsche Bank’s profitability this year, but would likely end the assault on the shares since the a capital raise would be less likely.
The FTSE 100 reached a new 16-month high and came within 10 points of the big 7000 level. A sharp drop in the British pound has aided UK-listed multinationals that make the bulk of their profits in foreign currency.
Shares of Henderson Group, the FTSE 250-listed asset manager soared 12% on news of its merger of equals with US-based Janus Capital, the home of “Bond King” Bill Gross. The merged group will create one of the largest investment firms in the world, with $320bn in assets under management. Janus Henderson will have its headquarter in London but will de-list from the LSE and keep listings in the US and Australia. It’s a largely defensive move designed to add some economies of scale to two active fund managers that have lost investment capital to passive funds in recent years.
US
US stocks dropped in early trading as oil prices steadied from recent gains and US economic data came in mixed.
Shares of Google (NASDAQ:GOOGL) dropped on Monday after documents leaked over the weekend gave an indication that the tech company may face a multi-billion dollar fine from the European Commission.
Shares of Tesla jumped to a one-month high after the electronic car-maker reported a 70% rise in car-deliveries in the last quarter. The faster pace of deliveries has put an, at least temporary end to the bearish sentiment towards the shares following a number of driver fatalities when using the car’s autonomous driving feature.
FX
The US dollar was broadly higher on Monday with a bigger than expected recovering the US service sector trumping a similar improvement in the UK and Europe. US construction spending saw a surprise decline with the previous month getting revised lower.
Sterling hit a fresh two-year low against the euro and came close to 31-year lows in US dollar terms on confirmation from Prime Minister Teresa May that article 50 will be triggered in the first quarter of next year.
Again the economic data didn’t square up with the fears on display in the market. UK manufacturing output rose by the most in more than two years according to PMI data from Markit. The strong data saw the pound temporarily rebound off its lows before sliding again later after US economic data beat expectations.
The suggestion that article 50 shouldn’t be triggered until after French and German elections meant the decision to officially kick-off negotiations in the first quarter of 2017 caught some in them market by surprise. The language from both UK and European camps appears to be hardening. A so-called “Hard Brexit” in which the UK leaves the single market in order to control immigration policy looks the most likely. The UK could still negotiate some favourable terms outside of the single market, but the lack of details known means that would be a bigger source of uncertainty. A longer period of uncertainty could lead businesses to defer investment and hiring decisions for longer.
Commodities
A tentative attempt by Brent crude oil to break above $50 per barrel has seen oil prices stabilise after the strong gains made since OPEC reached a tentative agreement to cut output in November. Another weekly rise in the US rig count is a reminder that the decline in US production is far from guaranteed, especially if OPEC’s decision has a put a floor under the oil price. OPEC’s decision is to all intents and purposes symbolic, rather than something that can have a meaningful effect on the supply-demand imbalance.
The price of gold sunk for a fifth day on Monday. The weakness in the gold price comes despite data from the CFTC showing gold traders increased their net long positions by 36.7k contracts to 291.9k in total. Fears surrounding Deutsche Bank and the European banking sector have done little to trigger safe-haven demand for gold.
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