UK and Europe
European stocks fell alongside the price of oil in a quiet day for markets as the East Coat of the US recovered from a blizzard ahead of the latest meeting from the Federal Reserve. Investors appear to have turned up for the new week a little dumbstruck after having last week witnessed stock markets swing from dramatic declines to one of the biggest two-day rallies in recent memory.
Hopes of policy stimulus and a stable Chinese currency could put a floor under markets until the Fed meeting on Wednesday. Another rate-hike so soon after raising rates in December for the first time since the financial crises would be a major shock. The expectation is for US rates to remain on hold in January so the focus will be on the accompanying statement. A 13-year low in the price of crude oil has been a dark cloud over markets but the silver lining could be that it forces the Fed to rein in its plans for four rate hikes this year.
Alongside falling oil prices, the dollar has risen 2% since the last Fed meeting. A rising dollar slows inflation by reducing the cost of imports and reduces growth by reducing exports. A major risk for the rebound in global markets that began in the middle of last week is that Fed looks past oil, the dollar and market turbulence and keeps a hawkish bias.
Shares of Barclays (L:BARC), Lloyds (L:LLOY) and RBS (L:RBS) all lost over 4% in a rout across the banking sector that took financials to the bottom of the FTSE 100. The prospect of further fines for mis-selling interest-rate swaps, regulatory pressure over IT system controls and uncertainty over HSBC's (L:HSBA) possible relocation weighed on the shares of Britain’s top banks.
US
US stocks fell slightly on the open with the blizzard across the East Coast and unease ahead of this week’s Fed meeting weighing on volumes.
Shares of McDonald`s (N:MCD) broke to a new record high after earnings came in well ahead of expectations, helped by the introduction of an all-day breakfast and trouble at fast-food rival Chipotle. A stronger dollar in its fast-growing overseas markets pulled down revenue but initiatives from new CEO Steve Easterbrook have boosted profitability.
FX
In the absence of any major economic data, the US dollar was mostly weaker on Monday, with only commodity currencies lower, tracking the price of oil and copper.
The euro was well bid, taking EUR/USD back above 1.08 despite a bigger than expected fall in German business confidence according to IFO data ahead of a speech from ECB President Mario Draghi Monday evening.
Commodities
The price of oil fell sharply in early European trading, giving up around a third of its gains off multi-year lows reached last week. There were demand and supply concerns driving prices lower as Chinese diesel and gasoline consumption fell while Saudi Aramco said it will not cut its investment plans. The price melt-up in the final two days of last week could make for more of a two-way market than has been seen so far this year.
A move into the red across equity markets helped secure haven flows into gold on Monday, pushing prices back to just short of $1110 per oz, which has acted as ceiling to the price this year.
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