European stocks fell on Monday after reports of record Iraqi output sent oil prices lower, destabilising hopes of a bottom after the massive two-day rally at the end of last week. Hopes of policy stimulus and a stable Chinese currency supported a rise in Asian stocks markets. The renewed slide in oil prices has seen a more nervy start in Europe.
There are still some unhealthy distortions in Chinese markets that should keep investors wary. Guangzhou Goaland Energy Conservation Tech, a company that makes coolants, said its IPO was 4,335 times oversubscribed.
A bigger than expected fall in German business confidence according to IFO data has weighed on the German DAX stock index but the euro was resilient ahead of a speech from ECB President Mario Draghi Monday evening.
Looming large over markets this week is the latest interest rate decision from the Federal Reserve 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.
On the FTSE 100, the oil & gas sector was the biggest laggard as oil prices slipped. The prospect of further fines for mis-selling interest-rate swaps, regulatory pressure over IT system controls and uncertainty over HSBC’s possible relocation was weighing on the shares of Britain’s top banks.
US stocks look set for a lower open in line with weaker sentiment in Europe ahead of a slow day on the economic calendar but multiple blue-chip earnings from the likes of McDonald`s (N:MCD), Halliburton (N:HAL) and DR Horton Inc (N:DHI).
USA pre-opening levels
S&P 500: 7 points lower at 1,899
Dow Jones: 69 points lower at 16,024
Nasdaq 100: 20 points lower at 4,239
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