UK & Europe
Snubbed merger rumours for Intercontinental Hotels Group (L:IHG) and Renault (PA:RENA) coupled with fears over the effect an imminent US rate rise might have on global demand kept European stock markets at bay on Monday.
Most major European stock averages dropped but the EM-focus amongst top flight UK stocks helped the FTSE 100 remain largely flat after Chinese regulators announced a resumption of IPOs, which at least temporarily has outweighed concerns over a US rate hike.
IHG shares slumped after the company released a statement denying it was not considering a sale or merger of the company. Shares have not retreated all of Friday’s gains when reports first surfaced, suggesting some remaining belief a deal might still be done. Renault shares fell after France’s PM Manuel Valls said the government is opposed to a merger with Nissan.
The softer than initially feared “too big to fail” rules for banks issued by UK regulators helped Barclays (L:BARC) and HSBC toward the top of the benchmark index, both of which have exposure to the raised possibility of better lending margins in the US if rates rise in December.
The surprisingly stable reaction in Asian markets to the idea of a US rate-rise brought on by the strong jobs report has helped Asian-focused Aberdeen Asset Management and Standard Chartered (L:STAN) top the FTSE 100. Mining companies including Glencore (L:GLEN) are also amongst some of the top risers.
Property companies such as Intu and utilities like Severn Trent (L:SVT) were top fallers since higher rates will increase the cost of purchasing a mortgage and the cost of servicing high levels of corporate debt will rise.
US
US stocks were mixed in early trading as markets largely looked through a downgrade to the OECD’s global growth forecast for 2015 to 2.9% in anticipation of a speech from Fed member Rosengren. Rosengren is a known dove so markets will be watching for any confirmation that December is a ‘live meeting’.
With a 2015 rate hike now looking more likely than not and after six straight weeks of gains for the Dow Jones and S&P 500, there’s a lot to be said for taking some profits off the table. The relatively calm initial reaction to the strong jobs report suggests the uptrend can remain intact but is just due a correction. There just needs to be enough confident dip-buyers to match those taking profits to stop a minor correction turning into another August-style rout.
FX
There was a feeling of the day after the storm in FX markets. The dollar was giving back some its large gains from Friday’s strong non-farm payroll report with little to no market-moving economic data releases in the UK or Europe.
A small retracement was evident in Sterling against the euro where EUR/GBP is backtracking on some the gains after the much more dovish than expected Bank of England inflation forecasts on Thursday.
Commodities
Commodities are now out-of-favour again in the aftermath of the US jobs report that caused a big surge in the dollar. Gold is hovering near three-month lows with little demand amongst investors for either an inflation-hedge or a safe haven that receives no yield when US rates look set to go higher. Oil is faring better than metals markets having become more dependent on its own supply and demand than on the movements in the dollar.
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