Equities
Market sentiment improved on Monday with equities and oil rising whilst the US dollar fell ahead of this week’s central bank meetings.
The FTSE 100 has started the week on the front foot, rising over 1% with every sector in the green in a sign of broad-based confidence. The UK benchmark equity index has suffered two weeks of declines amid central bank uncertainty, troubles in Europe’s banking system and a drop in the oil price.
The FTSE 250 index was having no such luck with sharp declines in outsourcing group Mitie (LON:MTO), dragging on the mid-cap index. The shares lost over 25% of their value. The profit warning from Mitie caught investors by surprise and the reaction was rancorous. The government cutbacks to some of its biggest public sector customers and higher minimum wages have meant less demand for its staff.
Further evidence of political disunity at the centre of power in Germany will be having some effect at the margins. The Xetra DAX is the worst performing stock index in Europe, albeit still higher. Chancellor Angela Merkel’s party losing regional seats to the AfD is reminiscent of the UKIP threat for the UK’s Conservative party. The Tories responded to the rise of UKIP by promising an EU referendum, and we all know how that turned out. The AfD may not get into power but it can shift policy in the main German parties, and the obvious area for reform is immigration.
A drop in the US dollar and higher oil prices have pushed mining shares including Anglo American (LON:AAL) and Glencore (LON:GLEN) to the top of the FTSE 100.
Shares of Tesco (LON:TSCO) and WM Morrison (LON:MRW) outperformed after an upgrade to the latter from Deutsche Bank and shares of Sky (LON:SKYB) got a boost after an upgrade from Morgan Stanley (NYSE:MS).
Stocks in the US rose in morning trade alongside the price oil as sentiment improved ahead of this week’s Fed meeting and the OPEC producer meeting later in the month. Markets have shown little sign of concern over US security following Sunday’s attacks, including a bombing New York City.
FX
The US dollar was broadly weaker on Monday with the dollar index back beneath 96 ahead of this week’s Fed meeting. The oil rebound meant commodity-backed currencies saw the biggest gains, led by the Aussie dollar. A pickup in the growth in China’s housing market has renewed bubble-concerns but is nonetheless a good thing for Aussie commodity demand.
A downbeat outlook from the German Bundesbank saw the euro fall against the British pound. The bank pointed to the “very weak” economic data, notably in the industrial sector at the beginning of Q3 for reasons to suggest the German economic expansion in the third quarter will be “somewhat” slower.
Commodities
The price of oil rose amid a backdrop of US-dollar weakness and speculation surrounding an output freeze at this month’s producer meeting in Algiers. Venezuelan President Maduro has said OPEC and non-OPEC countries were close to agreement to stabilise the market.
Given the number of false starts on the OPEC rumour mill, the Venezuelan President’s comments should be taken with a grain or two of salt. But in combination with two of Libya’s ports used for oil exports falling under militia control, the supply picture looks cloudy enough to warrant some bullishness after a down-week.
US dollar weakness saw silver prices make a six-day high, but the price of gold remained rooted to the floor with very small gains, still below $1320 per oz. Gold has been notably weak in the face of a string of missed US economic data points and a falling stock market, an environment typically bullish for safe havens. According to the CFTC, in the last week, speculators cut net long positions in gold by the most in more than three months.
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