Europe
In the first day of the shortened holiday-week, minimal data meant shares in Europe rebounded from Friday’s lows but without making much progress beyond its highs.
Volume is expected to be lower before Christmas and may result in a gradual drift higher thanks to positive sentiment generated by the Fed-induced rally last week. Low volumes mean decreased liquidity so could increase intraday volatility provided there is some catalyst to provoke a move in the first place.
The correlation between entire stock indices and oil prices has been broken for now and seems likely to stay so while Brent holds onto its recent floor around $60. Stock markets rose alongside oil and the Russian ruble in early trading but as oil prices faded equities held onto gains.
It was the energy sector that felt the about-face in oil prices. In the UK, the energy went from being one of the top performing sectors to the worst with Tullow Oil Plc (LONDON:TLW) and Weir Group (LONDON:WEIR) two of the hardest hit as the day progressed.
B&Q owner Kingfisher (LONDON:KGF)was a top riser after agreeing a sale of a controlling stake in its China subsidiary to Wumei Holdings.
US
US markets extended last week’s run higher in early trading but not without suffering a bit of a setback when data showed Existing home sales had collapsed by -6.1% month over month in November. Expectations had been for a modest rise but the housing recovery in the US in 2014 has been choppy at best.
Staples Inc (NASDAQ:SPLS) shares fell following further data on the number of credit cards lost in this year’s security breach.
American Apparel Inc (NYSE:APP) shares got a boost after the retailer said it would evaluate a bid for $1.30-1.40 per share.
FX
The US Dollar was mixed in Monday trading with the euro and Swiss franc seeing some gains while the Norwegian krone fell prey to falling oil prices.
The Swiss franc was making gains against the US dollar but relatively flat against the euro following last week’s shock decision by the SNB to cut interest rates to negative -0.25% on sight deposits.
The cut was triggered by increased demand for safe-haven currencies / assets notably from Russia when global stock markets sold-off sharply alongside oil prices. CHF has always been a destination for safe-haven flows but as a result of this action may unwittingly be the proxy destination for troubles in Russia.
The negative rates should act as a temporary stop-gap for further franc buying but if the ECB introduce full-blow QE next year, the Swiss will be forced to go further. The Swiss negative rates policy coincidentally or not starts on Jan 22, the same day as next ECB meeting.
Commodities
A big sell-off in natural gas sparked an implosion in commodity prices. Nat Gas dropped over 8% as fears spiked that the oversupply of US energy will be matched with lower demand in what has so far been a mild US winter.
Silver tumbled below $17 and gold fell further away from $1,200 per oz while oil prices slid near-on 3% towards recent floors.
After oil prices seemingly stabilised with Brent around $60, the Saudi oil minister Ali Al-Naimi felt bold enough to call a bottom saying the drop is a temporary oversupply issue that the market will soon redress.
It seems the rally in crude prices maybe a little further away than Al-Naimi envisions with his fellow OPEC member, the oil minister of Iraq Adel Abdul Mahdi announcing increased production next year.
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