UK & Europe
The absence of the usual bump in afternoon volumes from US investors yesterday left European stock markets a little sleepy on Monday as Americans celebrated Martin Luther King Jr Day.
As has become the custom recently; it was the volatile price of oil that set the tone for equity trading. A bounce off the lows set in Asian trading for crude oil helped an encouraging start for European equities but as oil prices slid back, equities fell into the red.
Sluggish performance across the European banking sector didn’t help broader sentiment. After generally weak results from US banking peers last week, UK-listed banks HSBC (L:HSBA) and Barclays (L:BARC) were underperformers. However, it was Italian banks that saw some the sharpest falls with Banca Monte dei Paschi (L:0R7P) down over 13%. Continually weak fixed income trading revenues are expected to weigh on the results of money-centre banks. The still uncomfortably high number of bad loans on the books of regional banks especially in Europe could be a problem should there be another economic downturn.
Markets are now in do-or-die territory. We’re now sitting just above the August lows; a line in the sand for many investors. Just another 2-3% drop from here could trigger enough position covering and protective options orders that move markets from correction to bear market.
Broker buy recommendations for Compass Group (L:CPG), Shire (L:SHP) and ARM Holdings (L:ARM) gave shares the first second and third sports on the FTSE 100.
Shares of Home Retail Group (L:HOME) gave up early gains after it was officially confirmed that Australian firm Westfarmers would buy its Homebase business. Homebase will eventually be rebranded as ‘Bunnings’ to match the name of Westfarmers’ Australian DIY chain. The Westfarmers deal is a positive for shareholders in itself but does muddy the water a little over Sainsbury's (L:SBRY) rejected bid for the group. The acquisition solves Sainsbury’s problem of having to selling-off Homebase since it was only after the Argos business anyway. The question will be how much Home Retail management dig their heels in over the price tag for Argos.
US
US stock markets are closed for Martin Luther King Jr Day.
FX
A lack of economic data on Martin Luther King Jr day left FX markets rather flat. The US dollar was mixed with the Australian dollar and British pound top risers while the Norwegian krone was a top faller.
The Australian dollar is seeing a short term bounce after Friday saw the currency touch 6 ½ year lows versus the dollar. The British pound was steady above 5 ½ lows against the US dollar. Long term support for GBP/USD sits just beneath 1.423 at the May 2010 low.
Commodities
Oil prices remain depressed but did rebound from lows of the day which had seen the price of Brent crude at its lowest since 2003. The lifting of Iran sanctions over the weekend has happened a little sooner than many thought and plays right into the market’s worry over the country’s political stand-off with regional rival and OPEC partner Saudi Arabia.
After surging as much as $25 on Friday, gold prices were subdued on Monday with no necessity for a haven while equities were quiet.
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