With China celebrating the Lunar New Year it was hoped that Chinese growth concerns would be absent from markets this week, but monthly data showing a fall in the country's foreign reserves has created some additional uncertainty surrounding official policy towards its exchange rate.
The $99.5bn drop in China's foreign currency reserves in January fitted conveniently in the middle of forecasts. A smaller drawdown than expected could have soothed sentiment in markets, whereas something much bigger could have catalysed a sharp sell off with perhaps an equally sharp rebound. The middle of the range data, which was slightly down on the decrease in December just leaves markets in limbo, though Asia markets were able to shrug it off in a subdued start to the week, while mining shares are broadly outperforming today in Europe, led by Rio Tinto (L:RIO) and Randgold Resources (L:RRS).
European markets after initially opening higher, having been led sharply lower by banking shares, a number of which are hitting multi-year lows. The disappointing earnings across the sector from the big US firms such as Credit Suisse (VX:CSGN) and Deutsche Bank (DE:DBKGn) in Europe, alongside the ugly spectre of negative interest rates, have seen investors significantly reassess the chance of an earnings turnaround after years of regulatory fines for past misdeeds.
Chip maker ARM Holdings (L:ARM) is the worst performer this morning in the wake of Fridays large scale losses in the tech sector on Friday.
With investors looking to mull over Friday’s mixed payrolls report, attention is now shifting to Fed Chair Janet Yellen’s meeting with US lawmakers on Wednesday and Thursday with respect to further clues as to the possible timing of the next rise in US rates. One thing seems certain, is that further stock market volatility looks likely to keep the Fed on the sidelines.
The Dow Jones is expected to open 190 points lower at 16,015.
The S&P 500 is expected to open 21 points lower at 1,859.
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