Europe
With quantitative easing entering its second week and falling oil prices set to further stimulate the European economy, it was another unambiguously positive day for stock markets in Europe. The German Xetra DAX stock index smashed through 12,000 for the first time to form another all-time high off the back of the easy-money policies from the ECB.
On Monday the European Central Bank reported that in its first week it has bought €9.8bn in public sector assets. Were government bonds to be all the ECB was buying, that’s only be 16% of the monthly €60bn total where 25% would be needed to be on target. However the €60bn is inclusive of other asset purchases including covered bonds and asset-backed securities which will make up the difference. €9.8bn is not quite as aggressive as some might have hoped in the first week but the ECB is still testing the waters and this total should creep up in the coming months.
UK
It was a cautious rally in the UK ahead of a big week for fiscal and monetary policy affecting the economy with Bank of England minutes and the national budget both on Wednesday.
It was brick and mortar retailers at the top of the FTSE 100 with Tesco (LONDON:TSCO), Sainsbury’s, Burberry, Kingfisher (LONDON:KGF) and Next all benefitting from the prospect of lower business rates.
Danny Alexander, Chief Secretary to the Treasury, said on Monday that a review of business rates announced in the Autumn Statement would be the most wide-ranging for a generation. Traditional retailers have been undercut by online equivalents with lower fixed asset costs so a cut to business taxes could help them compete.
The Chancellor is set to announce in the upcoming budget that all pensioners will be allowed to cash out existing annuities in the same way upcoming retirees can since the last budget.
Shares in insurance companies Standard Life (LONDON:SL) and RSA who would have been generating income from the annuities suffered. Aberdeen Asset Management and Prudential (LONDON:PRU) traded higher since both companies have substantial asset management arms and stand to gain more business when pensioners liquidate their annuity.
US
Oil prices and stock markets diverged in the US on Monday as WTI crude oil slid to new six year lows while the Dow Jones and S&P 500 pushed back in the direction all-time highs. Stock markets were currency-watching again after a big rally in the US dollar last week. A fall back in the US dollar was thought to be preferable for US multinationals.
The strong dollar ran roughshod over US equities last week in anticipation of the Federal Reserve removing its forward guidance language of “patience” over the timing for the first rate hike. Higher interest rates remove some of the necessity to invest in riskier assets like stocks to earn a return while also making borrowing more expensive for companies.
FX
The US dollar was lower across the board on Monday as profit-taking kicked in following a big move higher last week ahead of the FOMC on Wednesday.
Despite the drop in the dollar, GBP/USD and EUR/USD remained in and around recent lows at 1.48 and 1.05 respectively.
Commodities
Oil prices tumbled despite a falling dollar on Monday as the supply-glut grows in the US despite a drop in the number of rigs. A possible nuclear deal with Iran could open up Iranian oil exports to global markets and add to the situation of over-supply should UN sanctions be lifted as result.
Metal prices traded inside recent ranges with not much volatility expected before the Federal Reserve determine the fate of the US dollar at Wednesday’s meeting.
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