UK and Europe
The new week kicked off in positive fashion with UK and European stocks rising on Monday, helping the German DAX rise back through 10,000 for the first time since mid-January. The German DAX was the strongest amongst European stock benchmarks despite a rising political backlash against Chancellor Angela Merkel who was defeated in regional elections over the weekend.
Stocks came off highs of the day after the price of oil sunk following comments from Russia on Iranian oil output. The size of the oil sell-off, which saw its biggest intraday decline in over a month, is a risk-factor for the four-week old rally in equities.
It was another strong showing for European banks, which have extended gains after the announcement of supportive measures by the ECB last week. Talk of another government bailout for troubled Italian bank Monte dei Paschi was another contributory factor to strength amongst peripheral banking shares. A broker upgrade was supportive of European automotive stocks.
Mining stocks were atop the FTSE 100, brushing past week economic data from China as the Chinese yuan remains near its strongest against the dollar this year. Insurers were near the bottom on the UK index ahead of Wednesday’s UK budget that could see another rise in insurance premium tax.
Intercontinental Hotels Group (LON:IHG) was a top riser after American rival Starwood Hotels (NYSE:HOT) received a takeover bid from a consortium including Chinese insurer Anbang Insurance. IHG had been linked to a possible deal with Starwood before the latter agreed to a merger with Marriot (NASDAQ:MAR) hotels. IHG would be a natural new target should the Starwood deal not come off and the Anbang offer speaks well for takeover activity in the hotels sector going forward.
US
It was a cautious start to the week for US stocks which opened slightly lower amidst a lack of economic and corporate updates. Starwood hotels was a top riser on the day after a $13bn bid from a consortium led by Anbang Insurance.
FX
The US dollar started the week stronger amidst a lack of market-moving economic data ahead of the Bank of Japan policy meeting on Tuesday morning and the conclusion of the FOMC meeting on Wednesday.
The dollar strength is a pullback from weakness over the past five days over bets that the ECB will not cut rates any further and that the Fed will hold off on raising rates in March. The emergence of some dollar strength represents a growing sense that the Fed may choose to make a strong signal towards hiking rates in June or perhaps even April.
The Norwegian krone was the biggest faller as oil prices slipped away from 2-month highs.
Commodities
The price of oil fell back further from a three-month peak after the Russian oil ministry said it supports Iran’s right to increase its oil output after the lifting of sanctions. It was Iran’s lack of participation that derailed a proposed meeting between OPEC and non-OPEC producing countries to discuss the level of oil output. $40 per barrel has formed a natural round number barrier to further upside in Brent crude as the market decides on its next move.
The price of gold gave up early gains as the US dollar strengthened, adding to sharp losses seen on Friday when US stock markets rallied.
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