UK and Europe
European markets dropped on Monday despite signals of government stimulus from Chinese authorities that sent iron ore prices skyrocketing and boosted listed mining and resource shares. The stimulus, which it is hoped will address flagging Chinese economic growth, did little to address concerns that recent market gains may have gone too far.
Reports last week that there is a lack of unity within the European Central Bank over potential new monetary stimulus measures has removed some of the appetite for stocks on the continent.
Stocks in China rose for the fifth straight session after Chinese authorities said they would expand the budget deficit to 3% of GDP and increase the money supply to finance a rate of growth of 6.5 to 7%. Chinese bonds rose (as yields fell) on the idea interest rates would fall while the government borrows more to support the economy.
By afternoon trading the basic resource sector was the only group from the FTSE 100 trading higher after an early dip following the Chinese policy announcements. Basic resource shares continue to lead the rebound in markets, with the FTSE 350 mining index up 33% YTD versus a decline of 1.5% in the FTSE 100.
Old Mutual (LON:OML) was top gainer on the FTSE 100 on speculation the company is considering a break-up as part of a strategic review it began in November. Old Mutual has four very distinct units which makes it very ripe for splitting up. The drop in the South African rand, in which the insurance company gets most of its revenue, will have hurried the need for action. The UK wealth management arm has attracted the most interest from private equity within the square mile. More details are expected during the company’s earnings report on Friday.
St. James's Place (LON:SJP) shares were amongst the top risers after receiving a broker upgrade to ‘sector perform’.
US
US stocks opened lower on Monday with the Nasdaq 100 slipping to a four-day low. The decline in US stocks breaks the tight correlation between the oil price, which was higher, and the major US equity benchmarks. Comments from central bankers Brainard and Fischer could give some insight into last week’s payrolls data which saw monthly wages decline.
FX
The US dollar was higher on Monday with the US dollar index snapping a three-day losing streak in a day light of economic data ahead of Fed speakers Brainard and Fischer.
The euro and the British pound both saw small losses to the dollar while EUR/GBP was essentially unmoved just above 0.77 after having snapped back sharply from its 200 DMA on Friday. German factory orders fell -0.1% in January, less than the -0.4% expected.
The Japanese yen was sought as a haven while equities pulled back from recent peaks with USD/JPY falling back below 114.
Commodities
The price of Brent crude oil reached new highs for 2016 while WTI made a two-month high after data on Friday showed the US rig count at its lowest since December 2009.
The price of gold gained against a backdrop of risk aversion on the day, trading back above $1260 per oz but below Friday’s peak of just short of $1280. The triangle pattern in the gold price that was broken last week gives an upside objective of $1325 per oz according to the rules of technical analysis.
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