Europe
Suggestions that a final agreement on Greece’s bailout could be reached within days coupled with speculation of further monetary easing in China helped European shares edge higher on Monday.
Heavy losses amongst supermarket shares as well as slumping oil and mining sectors weighed down the FTSE 100. Shire PLC (LONDON:SHP) was a top riser as it made formal progress in its pursuit of a takeover of rival Baxalta Inc (NYSE:BXLT), as was Immarsat as investors continue to digest the bringing forward of its satellite launch.
Supermarket chiefs have been saying that the rise in British consumer spending is going towards holidays and restaurants rather than on food and clothing. This is now being confirmed by analysis from visa and Markit. A separate report showed leading supermarkets Tesco (LONDON:TSCO), J Sainsbury (OTC:JSAIY) PLC (LONDON:SBRY) and WM Morrison Supermarkets PLC (LONDON:MRW) have seen the most damaging effects from a price war in the sector.
Chinese trade slumped in July symbolising a drop in both domestic and international demand as well as stronger yuan versus the euro and Japanese yen. The trade data is an indication that easing from the People’s Bank of China to date may not have been enough to stabilise the economy.
The Shanghai Composite closed higher by 4.9%, the highest in a month on expectation the government will step in with further stimulus. With a benchmark interest rate of 4.85%, China has plenty more room to cut. Another cut of 50 basis points before the end of year looks entirely likely.
Sentiment in Europe was lifted by apparent progress in talks over the weekend involving Greek finance minister Euclid Tsakalotos and economy minister George Stathakis and representatives from the four institutions. Greece has ten days before its next payment is due to the ECB but still has the thorny issue of debt relief to get resolved between two of its most prominent creditors; Germany and the IMF.
US
A mega deal for Warren Buffet’s Berkshire Hathaway (NYSE:BRKa) and a slightly dovish reference to low inflation from Fed vice chair Stanley Fischer helped US markets to a higher open on Monday.
The Dow Jones has been on a seven-day losing streak and is well due a bounce, as were shares of Apple (NASDAQ:AAPL) which traded as a much as 2% higher in early trading.
The Dow is beneath its 200 day moving average and closer to the floor of its trading range at 17,000 rather than the ceiling at 18,300. Which direction the breakout takes place may largely rest on the timing of any interest rate hike from the Fed.
Friday’s payroll report is generally accepted as good enough unemployment data to keep a rate hike in September on the table. Vice Chair Fischer’s description on Monday of inflation as “very low” is a reminder of the Fed’s dual mandate. Mr Fischer said the decline in inflation was temporary and in large part due to the fall in energy prices. What’s not clear is how confident the vice chair feels about raising interest rates when inflation is low, despite his belief it is temporary.
FX
With little in the way of economic data, the dollar was mixed on Monday, taking cues from both commodity prices and comments from vice chair of the Federal Reserve Stanley Fischer.
Disappointing trade data from China weighed heavily on the Australian and New Zealand dollars, where the economies have strong trade ties with China. AUD/USD came just short of reaching a one-week high before falling back beneath 0.74.
Missed estimates in Japanese data over the weekend including trade and consumer confidence helped USD/JPY largely undo Friday’s post-NFP fall. The pair is perhaps set to make another run above 125.
Commodities
Commodities were mostly higher with Gold, Silver, copper and crude oil all enjoying a bounce in prices within the constraints of a tight trading range.
The fundamentals for Crude Oil are all still very bearish in the long run but short term positioning may setup the market for a bounce in an around the multi-year lows formed in March. COT data revealed large speculators had increased net long positions in the last week to a three week high.
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