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Slow start to the week as central bank decisions loom

It’s been a slow but broadly positive start to the week for European markets after a mixed Asia session which saw Chinese markets fall sharply after a failure to cut loan rates which has served to weigh on commodity prices more broadly with the Hang Seng sliding further today and is now down over 12% since the end of last year.

Europe

Today’s slow start speaks to a degree of caution ahead of some key risk events over the next couple of weeks with the Bank of Japan and European Central Bank, due to meet this week, followed by the Fed and Bank of England next week.

The weakness in China is translating into similar weakness in basic resources and helps to explain to some extent why the FTSE100 has struggled this year and is down over 3% so far this month.

Mining companies are once again acting as the main drag on UK markets with the FTSE100 underperforming with Rio Tinto and Glencore both lower under pressure with Glencore shares sliding to 18-month lows.

Endeavour Mining is also lower after reporting a disappointing Q4 performance, although it was more optimistic on gold production for 2024, albeit geared more towards the second half of the year.  

Natural gas prices have also continued to come under pressure, sliding closer to the lows we saw last summer, which is prompting some underperformance from the likes of BP and Shell. 

On the plus side we’re the rebound in housebuilders has continued with Persimmon, and Barratt Developments leading the outperformance in this sector, after last week’s various broker upgrades to the sector.

US

Having pushed up to new record highs last week, US markets have picked up where they left off with further gains in what is set to be a big couple of weeks for expectations over company earnings and central bank rate policy.

We’ve seen new record highs for the likes of Nvidia and AMD over the past few days, while MetaPlatforms has followed suit, setting another record high today, as it finally recouped all the 2022 losses which saw it trade as low as $88 in October 2022.

Super Micro Computers has also built on its gains of last week, after the company comfortably beat expectations on its Q2 numbers and raised its guidance on the rest of the year on the basis of huge demand for its AI servers.

Boeing shares slipped lower in early trade on the reports over the weekend that US regulators told airlines to check the door plugs on an earlier model of the 737, the 900ER model as scrutiny on Boeings Q&A processes gets ramped up further.       

FX

Currency markets have seen a subdued start to the week with the Japanese yen slightly firmer ahead of tomorrow’s Bank of Japan decision on monetary policy tomorrow with expectations quite low on the prospect of any sign of a policy pivot in the short term. That doesn’t mean the central bank won’t look at tightening monetary policy this year from the current settings of -0.1%, but the need to act has been ameliorated somewhat by expectations of rate cuts from its nearest peers in the coming months.

The euro has also seen a subdued session ahead of this week’s ECB rate meeting.

Commodities

Gold prices have continued to look soft as the prospect of a US rate cut in March diminishes further. With every single positive US data point the likelihood that the Fed will look to cut rates in the coming weeks has receded further. That’s not to say we won’t see a rate cut at all, but the timing of one could come in the second half of the year, a scenario that markets aren’t currently pricing.

Despite the recent cold snap in Europe, natural gas prices have continued to fall, and look to be on course to revisit the lows we saw in the middle of last summer.

Crude oil prices on the other hand have edged higher and are close to one-week highs as markets continue to exercise caution over supply disruption in and around the Red Sea. The reopening of a key oilfield in Libya has seen supply concerns there ease somewhat, however the prospect of further US retaliation on Houthi rebels in Yemen as well as on militants in Iraq and Syria is keeping the downside limited.

 

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