UK stocks picked up from near two week lows on Monday with the FTSE 100 edging back over 6280. Stocks in Europe have made back over half of Thursday’s drastic losses with the German DAX surpassing 10,970.
So far markets have pulled back rather than extended Thursday’s shock ECB-induced moves. There’s been a sense of reassessment rather than panic. There is clearly still a stark divergence between European and US monetary policy. The ECB’s under-action has so far just meant a quick readjustment over the size of the divergence with the euro popping and the stocks dropping.
Heavy short positioning in the euro going into the meeting probably meant the surge higher was an over-reaction. European stocks close negative correlation with the euro meant a necessary drop as the euro rebounded. The other half of the bearish equation for the euro is the Federal Reserve. With only US retail sales and inflation figures to go before the policy meeting, markets are pricing an 80% chance of the Fed tightening rates.
On Monday the euro sank for a second day after German industrial production rose only 0.2% m/m versus expectations of a 0.8% rise. The single currency is still sitting above 1.08, over 300 pips away from multi-year lows.
Optimism over talks with shareholders this week helped Rolls Royce (L:RR) to the top of the FTSE 100. Broker upgrades for property firm Hammerson and rating reaffirmations after earnings last week for Associated British Foods (L:ABF) meant both shares were top risers. The weak oil price meant oil-majors Royal Dutch Shell (L:RDSa) and BP (L:BP) were propping up the UK benchmark.
Oil prices are sliding again following OPEC’s failure to decide on quotas. Initial reports had suggested a rise to 31.5m b/d but in the final equation a row between Saudi Arabia and Iran meant a specific ceiling was omitted from the statement.
US stocks look set for higher open on Monday. US economic data is back-loaded this week with retail sales, producer price inflation and consumer sentiment all reported on Friday. There are little in the way of major earnings releases on Monday but retail giant Costco (O:COST) reports on Tuesday.
USA pre-opening levels
S&P 500: 2 points higher at 2,093
Dow Jones: 8 points higher at 17,855
Nasdaq 100: 8 points higher at 4,724
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