UK & Europe
Significant price levels were being broken across multiple asset classes on Monday as signs of stress saw risky assets plummet and havens jump.
The German benchmark stock index fell below its 200 week moving average for the first time since 2012; German two-year yields dropped further into the negative to a fresh record low while gold reached a six month high.
Banking shares across Europe buckled under the pressure of global growth concerns in concert with the ugly spectre of negative interest rates. Weak earnings from European banks, notably that of Deutsche Bank have seen investors significantly reassess the chance of an earnings turnaround after years of regulatory fines for past misdeeds. The disappointing earnings across the sector from the big US firms to Credit Suisse whose CEO asked to have his bonus cut by as much as 50% is refocusing investor attention on bad loan books which have not been addressed since the European crisis. In the days after Deutsche Bank issued a surprise profit warning, credit default swap spreads ballooned as investors started to question the bank’s ability to fund itself. The CDS jump has caused a sharp drop in Deutsche Bank shares.
Newly promoted FTSE-100 payments company World pay took the brunt of the selling, down over 7%, Hargreaves Lansdown fell after its shares were reiterated as underweight while chip maker ARM Holdings was a top faller alongside top US tech firms.
The price of gold surging to a six-month high was the icing on the cake for Randgold shareholders after the gold miner beat full-year earnings estimates and raised its dividend by 10%.
US stocks opened lower on Monday driven lower by the underperformance of formerly high-flying FANG stocks including amazon which lost as much as 4% in early trading.
Large tech stocks were down across the board for a second session after shares of LinkedIn tanked 40% on Friday. Even after having fallen over 10% from record highs, top US tech stocks a still very generously priced, which doesn’t allow for the kind of growth slowdown indicated in some earnings reports.
The US dollar was mostly stronger on Monday, continuing the positive momentum from Friday’s non-farm payrolls report. It’s far from a foregone conclusion that the Fed will raise rates in March, even this year, but the faster wage growth means its back on the table and the dollar is reflecting that.
The Japanese yen was top FX performer, matching a general flight to safety across asset classes. USD/JPY fell below 116 to a fresh one-year low.
A surprisingly large drop in European investor confidence according to Sentix coupled with general dollar strength saw the euro fall. EUR/USD has so far held up above 1.11.
Oil prices dropped back again on Monday as the US dollar picked up strength and a meeting between the oil ministries of Saudi Arabia and Venezuela came to nothing. There was a discussion of “cooperation” between OPEC and non-OPEC producing countries, but as of yet no Gulf state has publically acknowledged even a wish for a meeting with Russia.
Gold continued its blistering good form, jumping 1.5% to its highest since October 15. Gold has risen on haven demand, generally reduced expectations of a Fed rate rise and Chinese government reserve accumulation. There has been increasing talk of a recession so gold is a natural beneficiary.
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