Europe
It’s been a slow start to the new week with little in the way of drivers ahead of the Christmas break, as European markets trade sideways on fairly subdued volume.
We’ve seen some additional softness in banking stocks led by Italy’s Monte dei Paschi (MI:BMPS) as they look to raise €5bn in the hope they can avoid a state funded bailout, while reports that Germany’s Deutsche Bank (DE:DBKGn) is axing bonuses in order to set aside funds for its upcoming US Department of Justice fine is weighing on sentiment.
The German bank has also agreed to pay $37m to settle claims that it deceived clients who used its “dark pools” for trading. It’s an important reminder that the legacy problems of Germany’s biggest bank remain a significant concern.
Amongst the worst performers today we have Barclays (LON:BARC) after reports emerged it was looking to offload up to as many as 7,000 clients unless they boosted their trading levels.
Mining stocks are also a little bit soft on the back of weaker metals prices and concerns that China’s economy may well slow more than expected in 2017, against a slowdown in property prices.
Airbus Group (LON:0KVV) shares also fell back after Iran cancelled its order for a number of A380 aircraft, part of a larger order which also consisted of 100 A330s.
Pharmaceutical stocks have built on their gains from Friday, with Hikma Pharmaceuticals (LON:HIK) leading the way.
Outsourcing group Capita (LON:CPI) has continued its recent run of gains from multi year lows, helped by news that the BBC had extended its TV licensing collection agreement with the company until 2022.
US
US markets opened slightly higher yesterday after Friday’s late sell-off on the news that China had seized a US drone in the South China Sea. Attention remains on whether the recent rally in the Dow has the legs to retest the 20,000 level that saw the index fall short on two occasions last week.
For now markets are likely to be focussing on a speech later today in Baltimore by Fed chief Janet Yellen and whether she will elaborate further on her remarks last week, when she talks about the state of the US labour market.
Stocks in focus include Apple (NASDAQ:AAPL) as the company gets set to appeal the EU’s claim that it owes €13bn in unpaid taxes.
FX
The pound has had a disappointing day, losing ground across the board particularly against the yen which is regaining some ground ahead of tomorrow morning’s Bank of Japan rate decision. While some have suggested a further loosening of policy might be possible, it seems unlikely given the sharp decline in the Japanese currency over the last few weeks.
The US dollar has maintained its resilience after Friday’s weakness as a number of Fed officials continue to weigh in that several rate rises could well be on the agenda in 2017.
This was reinforced over the weekend by Richmond Fed President Jeffery Lacker in an almost eerie echoing of events this time last year. Last year a number of Fed officials including Mr Lacker also sounded off about the prospects of much tighter policy only to spend most of the year procrastinating before finally delivering just the one rise in rates.
While Mr Lacker’s views are important they aren’t generally representative of the FOMC and he doesn’t have a vote until 2018 in any case. With three new Fed Presidents due to take up their voting rights in 2017 the dovish or hawkish bias of Messrs Kashkari of the Minneapolis Fed, Kaplan of the Dallas Fed and Harker of the Philadelphia Fed still remain an unknown quantity.
Commodities
Oil prices initially remained steady after it emerged that the recent expectation of the return of Libyan production failed to materialise, but have found their upside limited by the strength of the US dollar. Expectations are building that higher prices may well be on the way, in an expectation that the deal agreed amongst OPEC and non OPEC members will hold and come into effect as expected in January next year.
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