Europe
Shares in Europe pulled back on Monday as further evidence of a slowdown in Asia and slower than expected industrial growth in Germany lowered risk appetite undoing some of the strong gains made at the tail end of last week on strong US employment data.
The value of Chinese imports slumped alongside the price of oil in November while export growth slowed on weakening global demand. The ChinaChina A50 index rallied over 5% on the news partly because China stands to be a big beneficiary of lower oil prices but also because the import data suggests domestic demand is not where it could be so the PBOC may choose to add to their recent loosening of monetary policy.
German industrial production was essentially flat since last month after seeing a good rise in September. Factory orders have come in strongly for the last two months indicating industrial production should maintain upwards momentum in the fourth quarter.
While European productivity needs its powerhouse firing on all cylinders to maintain its recovery since the debt crisis, the direction of European stock market is dancing to a different tune, namely ECB stimulus.
All-time highs in the German DAX and record low German Bunds suggest that the market is still pricing in government bond purchases by the European Central Bank. Whether this takes place in the January meeting rather than the one in March or later will largely depend on the results of the TLTRO program announced on Thursday. If banks are taking up loans as part of the TLTRO there is justification for waiting to see if that can feed through to the real economy, if they aren’t full quantitative easing would be the next logical step.
The FTSE 100 is yet to break the October peak despite improving fundamentals including last weeks’ manufacturing and services PMI results as the strong international exposure of its components especially within the commodity sectors continue to drag.
Marks & Spencer (LONDON:MKS) dropped to the bottom of the index on reported delivery problems. Angry investors awaiting the arrival of their new Black Friday clobber punished Marks and Spencer’s stock by selling it off in excess of 3%.
easyJet (LONDON:EZJ) shares fell on speculation that the company and other budget airlines would use the opportunity of low oil prices to seriously undercut flagship carriers on short-haul flights, potentially leading to higher growth but lower yields next year.
US
US markets were essentially flat in early trading as investors weighed up the benefits of a stronger economy as demonstrated by the big gains seen in the labour market against the possibility of an earlier removal of stimulus.
Financial shares Goldman Sachs Group Inc (NYSE:GS) and American Express Company (NYSE:AXP) were top performers in the Dow but McDonald's (NYSE:MCD)’s shares were lower after the company reported another drop in same-store sales while Chevron Corporation (NYSE:CVX) and Exxon (NYSE:XOM) fell with oil prices and Caterpillar (NYSE:CAT) dropped on poor Chinese trade data.
FX
The US dollar was mostly stronger against major currencies on Monday with the Japanese yen and British pound seeing the only gains.
USD/JPY initially jumped as the Japanese economy fell even deeper into recession than initially thought but traders took gains before the 122 handle.
GBP/USD rallied back above 1.56 after the sell-off in sympathy with the falling euro but still looks week and may struggle to get higher than 1.57 on any extension of the pullback.
Commodities
Crude oil prices dropped heavily on a broker downgrade while the newly appointed OPEC President; the oil minister of Nigeria Alison-Madueke is unlikely to change policy when she begins her term in January.
Having fallen on dollar strength after the positive non-farm payrolls number on Friday, gold traded slightly higher on Monday just beneath $1,200 per oz.
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