UK & Europe
European Stocks were off their highs on Monday in a lacklustre response to the smaller than expected fall in Chinese economic growth. The 6.9% growth in China’s GDP is the slowest since 2009, hardly a good thing, but it’s not as bad as had been expected. The data from China went someway to ease concerns of an accelerating global slowdown.
The prospect of the European Central Bank easing monetary policy this week appears to be acting as a bit of a floor to shares on the mainland. Germany’s DAX was resilient led higher by Metro AG however France’s CAC dipped in and out of gains and losses. Weakness amongst China-sensitive commodity stocks dragged the UK’s FTSE 100 from early gains to losses.
Part of the reason for the hesitancy in markets could be the idea that China’s stronger than expected GDP takes away the ‘emerging markets justification’ for the ECB to expand QE this week.
Stocks have bounced nicely off the lows in late September with stocks in the UK and US nearing two month highs. The worry is that this has just been a correction before a new leg lower. The mere hope of new stimulus in Europe and China, and a delayed rate hike in the US, may not be enough to tempt more investors back into the market at these higher prices.
Shares of Deutsche Bank (DE:DBKGn) were trading near two month highs after the German bank announced a massive restructuring including the ouster of several executives. There has been a perceived lack of determination to address shortfalls in the chain of command that had led to the LIBOR rigging fines. Incoming Chief Executive John Cryan is making it very clear to shareholders that big change is on the agenda. The risk is that this level of change can be more destabilising than motivational. Investors are cheering Mr Cryan’s determination today but the bank will need to see results improve or concern will creep in that he’s tried to do too much at once.
The rebound in oil and metal prices has supported the rebound in equities but commodities were generally lower on Monday following further evidence of the slowdown in China. As such, basic resource shares were propping up the bottom of the FTSE 100 with miner Anglo American (L:AAL) and commodity-trader Glencore (L:GLEN) top fallers.
Shire underwent an impressive U-turn going from biggest faller to top riser on the FTSE. The uncertainty over the company’s new eye drug brought on by it not being approved by the US FDA sent the stock lower before well-received earnings from US sector peer Valeant helped healthcare stocks higher.
ITV (L:ITV) shares were flat on news it has bought the television assets of Northern Irish broadcaster UTV for £100m. The UTV deal is good for ITV’s market reach in Ireland but does depart from the broadcaster’s recent strategy of moving away from advert-depend businesses.
US
US stocked edged lower at the open following a disappointing earnings report from banking giant Morgan Stanley (N:MS) and oilfield services company Halliburton (N:HAL).
Morgan Stanley shares dropped over 6% in early trading after profits came well short of expectations. CEO James Gorman placed the blame with volatility in global markets and the impact on fixed income trading and Asia merchant banking.
It’s been a bit of a sorry quarter for the six big US banks. Rising interest rates and reduced regulatory fines can still cushion the banking sector but hesitancy from the Federal reserve and the risk of renewed vigour from regulators means it could be a bumpy road.
FX
With little in the way of market-moving data, FX markets were quiet on Monday with US dollar essentially unchanged versus most major currency pairs. The exception was small gains for the British pound and losses for the Swiss franc.
The British pound saw some gains as traders positioned for a continuation of the large volatility from last Wednesday when GBP/USD surged over 200 pips.
Commodities
News of a ‘technical’ OPEC meeting was not enough to undo the negative implications for oil prices of a confirmed Chinese economic slowdown after GDP growth slowed to 6.9% in the third quarter. There is little sign cooperation between Russia and OPEC on oil production and Venezuela is unlikely to have enough sway over the rest of the cartel to encourage a change of polyc towards cutting output. Brent crude had recovered at the tail end of last week but has failed to hold above $50 per barrel and was down as much as 3% on Monday.
The weakest China GDP report since 2009 took its toll on the price of copper which slid over 1.5%.
The price of gold erased early losses after coming just shy of $1170 per oz, the peak reached on August 24. With volatility easing back in equity markets, gold doesn’t quite have the safe-haven demand at the moment. A speech from the Fed’s Mr Lacker could be the next piece of the puzzle on whether the Fed will raise rates this year.
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