UK & Europe
UK and European shares fell on Monday as the price of oil slumped again after another dose of weak Chinese manufacturing data raised fresh doubts over the health of China’s economy.
Early losses accelerated in afternoon trading when a number of disappointing US economic data releases stirred up concerns over the US economy just as the Federal Reserve has set out plans for a series of interest rate hikes this year.
Markets are paring some of the massive stock market gains from Friday when the Bank of Japan set interest rates to negative in order to boost lagging Japanese inflation. It’s natural enough to have a pullback after such strong gains but there could be something a little more to it. Friday’s BOJ-induced rally could have been more relief than belief. As the dust settles, investors are likely concluding that negative interest rates in Japan will not have anything like the same kind of impact as quantitative easing on global equities.
Easyjet and British Airways-owner International Consolidated Airlines were high flyers on the UK stock market after rival Irish discount airline Ryanair doubled quarterly profits and announced a €600m share buyback as the price of oil fell again, lowering the cost of fuel.
Shares of BT were amongst top risers on the FTSE 100 after the company topped estimates for quarterly profits and news broke that the merger of two of its mobile network rivals could be blocked. Customers switching to BT Broadband and TV services to watch Champions and Europa league football helped the company see sales and profits both rise by 3% over the same period last year. The UK regulator OFCOM is publically pushing back on the proposed merger of O2 and Three on concerns that it will mean higher mobile phone bills in the UK.
US
Shares in the US opened lower on Monday after manufacturing slowed more than expected in January according to data from Markit and ISM. It’s the fourth miss in monthly ISM manufacturing data in a row. There has been a spate of disappointing US economic data which is adding to concerns that the Fed may have committed a policy error in its decision to start raising rates.
Shares of Twitter (N:TWTR) rose as much as 9% on rumours that one of its angel investors Marc Andreessen could team up with private equity firm Silver Lake to buyout the company. Shares have been beaten up as the company has failed in successive quarters to sufficiently grow its user base. Andreessen clearly believes the social network adored by the few and shunned by the many has untapped value.
Google’s holding company Alphabet and toy-maker Mattel (O:MAT) report after the closing bell.
FX
The US dollar fell across the board on Monday after disappointing manufacturing and personal spending data compared unfavourably with better data abroad.
Commodity currencies were the weakest thanks to the drop in the price of oil and industrial metals after Chinese manufacturing contracted for another month in January.
The Chinese yuan was fixed ever so slightly lower for the first time in two weeks by the PBOC. The modest devaluation may be to reflect the weaker Japanese yen since Chinese authorities have said adjustments would be based on a basket of currencies instead of just the US dollar.
The euro and the British pound rose after a mixed set of European manufacturing data and a surprise rebound for the sector in the UK. The UK PMI came in at 52.9 in January compared with expectations of a fall to 51.6 from 52.1 in December.
Commodities
The soft Chinese data prompted another slide in the price of crude oil which had already started to come under pressure after OPEC officials denied talk of a joint production cut between the cartel and Russia. Large increases in US inventories go some way to explain the underperformance of WTI which fell over 3% to beneath $32 per barrel.
The huge short-squeeze that saw prices surge by 25% in the past few days will probably keep crude above the January 20 low for the time being, but absent any major fundamental catalysts for a recovery it’s hard to see the price above $40 per barrel.
Having rebounded from beneath $1110 per oz on Friday, the price of gold rose again on Monday to near three-month highs. A rising belief that the Fed made a policy mistake by raising rates in December continues to create demand for havens. The BOJ has stepped in to effectively devalue the yen so that has left gold as the main haven game in town.
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