Europe
European markets have continued where they left off at the end of last week, as rising bond yields and the continued impasse over a new Greece deal keep investors cautious.
Since the October lows the DAX is still up over 20% so some type of pullback was eventually likely to take place, and it looks like we are seeing that correction from the highs in April continue to play out, as the German benchmark moves more than 10% away from its recent highs and into correction territory.
Increasingly strident language from both the Greek side and the EU side isn’t helping either with French officials saying that a Greek exit would be no big drama.
It seems that for all the rhetoric coming out of Europe that each side is talking over the other, with neither side actually listening to what the other is saying, which doesn’t bode well for a successful outcome.
There have been some bright spots with Deutsche Bank AG (XETRA:DBKGn) NA O.N. (LONDON:0H7D)’s shares sharply higher after the weekend announcement that the joint CEO’s of Jurgen Fitschen and Anshu Jain would be stepping down. The market reaction would appear to suggest that this was something that was long overdue given the recent disquiet expressed amongst some shareholders at the recent AGM. It had become increasingly apparent in recent months that the current management did not have the confidence of the markets given the number of regulatory indiscretions in recent years and that a change was needed and it finally appears that this has been recognised, and that new management was needed.
In the UK brewing giant Diageo (LONDON:DGE) is at the top of the index after reports that the company could be the subject of a bid from 3G Capital, owned by Brazil’s richest man, Jorge Lemann. Whether the bid chatter amounts to anything is another matter, with not a little scepticism in some quarters, but merger mania does appear to be the only thing helping support markets at the moment, with Vodafone (LONDON:VOD) also getting support on continued speculation on the Liberty Global (NASDAQ:LBTYA) chatter and BT Group (LONDON:BT) finding support on the back of weekend chatter that Deutsche Telekom (XETRA:DTEGn) might be considering a bid.
On the flip slide Shire Plc (LONDON:SHP) is lower on talk that the company is considering a bid for Swiss Group Actelion.
US
US markets opened slightly lower today as investors trod cautiously in the wake of last week’s strong payrolls numbers. Rising volatility in bond markets is making equity investors a touch more cautious particularly with yields at their highest levels this year.
The increasingly tense language between Greek officials and its creditors isn’t helping as both sides continue to talk over each other.
Stocks in focus are likely to include Apple (NASDAQ:AAPL) as the Worldwide Developers Conference gets under way as speculation grows that the company will announce details on a new streaming service to take on Spotify.
FX
The US dollar has slid back across the board reversing some of Friday’s jobs report inspired gains after reports from unnamed French officials that President Obama had expressed some concern that the US dollar was too strong.
The euro has been the best performer today despite concerns about Greece, as German yields continue to edge higher, narrowing the spread differential with US treasury yields.
The pound has had a disappointing day after ratings agency Moody’s warned that an early EU referendum next year might impact adversely on the UK’s credit rating.
Given that the UK has already lost its triple “A” rating without too many negative headwinds it seems rather tenuous for Moody’s to speculate on an outcome that isn’t likely to happen in the short to medium term.
Commodities
Oil prices have slid back today despite a weaker US dollar, probably taking their cues from this morning’s weak Chinese trade data.
Another slide in imports suggests domestic demand remains much weaker than expected and that combined with this mornings announced cuts in fuel prices by the Chinese NDRC, points to a Chinese economy that remains under pressure, and could struggle to meet its 7% GDP target.
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