Europe
Stocks in Europe pulled back from record and multi-year peaks on Monday when disappointing German business confidence data took the edge of what looks to be an at least temporary resolution to Greece’s debt woes.
The German IFO business climate index for February came in at 106.8, missing the estimated 107.7. The expectations index printed at 102.5, missing the estimated 103.0. The current assessment index printed at 111.3, missing the estimated 112.7.
The pickup in expectations in the IFO was not quite at the rate most had anticipated and Manufacturers’ assessments of the current business situation dropped resulting in an overall negative reaction interpretation from markets.
The agreement reached on Friday between Greece and its creditors removes the immediate risk of Greece not being able to make its debt payments next month and possibly being forced out of the single currency area. With no details yet agreed upon, there was no real catalyst to push stocks higher than they had already rallied in the initial reaction on Friday.
UK
UK stocks took a breath from Friday’s rally alongside the rest of Europe as a fall in base metals and Oil prices weighed on commodity-related stocks.
The FTSE 100 traded above its all-time closing high in early trading but soon dropped back led lower by banks HSBC Holdings Plc (LONDON:HSBA) and Standard Chartered (LONDON:STAN).
HSBC missed earnings expectation thanks to fines for rigging FX markets. The timing for HSBC was not good given that the missed results came just days after being embroiled in past misdeeds involving tax avoidance at its Swiss office.
US
Another collapse in oil prices, apprehension ahead of Federal Reserve Chair Janet Yellen’s testimony to the Senate Banking Committee on Tuesday as well as a drop in existing home sales in January led US stock markets to a lower start on Monday.
The latest statement from the Fed erred to the dovish side so the key will be whether that gets confirmed by Yellen in her speech. Janet Yellen is likely to over-emphasise the data-dependency of the timing of the first rate-hike, perhaps with a hint that current projections would imply the timing being around mid-year.
FX
The US Dollar was stronger across the board on Monday with the Japanese yen, British pound and New Zealand dollar managing to hold on around break-even.
The strong dollar would suggest hawkish expectations heading into Janet Yellen’s testimony, or at least a paring back of very dovish expectations brought on by the last set of Fed minutes.
With dollar bid across the board, it was a sign of strength that GBP/USD was able to hold onto modest gains later in Monday’s session. The more hawkish outlook from the Bank of England has gone some way to close the gap with the Federal Reserve whom most expect to hike rates mid-year.
A disappointing German IFO helped send EUR/USD to the bottom of its recent trading range at 1.13 despite the expectations for a positive resolution to the issues in Greece.
Commodities
The US rig count fell less than expected on Friday leaving oil prices lower. Friday’s fall has followed through to Monday after Libya opened up a new pipeline and Oman increased production; both adding to the global supply glut.
Salim Al Aufi, undersecretary of the oil and gas ministry in Oman said on Sunday that the country would be increasing production to 4% above the output levels from 2013. The fact that oil prices have stabilised this year hasn’t changed the policy of Middle Eastern or indeed any other producers who are pumping as much as possible to maintain market share.
Any need for a safe-haven in gold faded further on Monday with an agreement seemingly going to be struck soon for Greece and its bailout plan. The Chinese New Year holiday has also had a detrimental impact across most major metal markets in the last week.
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