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Volatile session as oil turns around

European equity markets sold-off severely in early trading due to the poor manufacturing data from China overnight. 


The Caixin survey of Chinese manufacturing fell to 49.7, its first contraction in 19 months. Stocks are off the low of the session and some indices are actually in positive territory, but investors are still cautious about the outlook for the second-largest economy in the world. China has been undergoing an economic slowdown for years, and the manufacturing report underlined the point that the second-largest economy in the world is cooling. Trade tensions between the Washington DC and Beijing are ongoing and that adds to the bearish view that traders hold about the state of the global economy. In recent weeks there has been heightened fears of a global slowdown, and the latest figures from Beijing overnight have added to those worries.

The FTSE 100 has a relatively large exposure to commodity related firms, so the worry that China is cooling has hit mining companies hard. China is a major importer of minerals, and traders are fearful their appetite for commodities will fall further. BHP Billiton, Rio Tinto, and Glencore are all in the red. 

The FTSEMIB has lost ground today after the European Central Bank (ECB) appointed temporary administrators for the struggling Italian bank, Banca Carige. The bank missed a deadline to improve its financial position, which prompted the majority of board members to stepdown, and that triggered the ECB’s action. The Italian banking sector is under scrutiny now.

Ophir Energy shares have rallied today after it was reported that Medco Energi are in takeover talks with the UK-listed company. No monetary amount has been announced, but should the deal go through, it would create a robust producer in south-east Asia. Medco are clearly confident in their own ability to perform well given the uncertain outlook in the oil market.  


The Dow Jones and S&P 500 are lower this afternoon as the sour sentiment in global stocks has hurt the US markets. The disappointing manufacturing figures from China overnight spooked investors on Wall Street as it is yet another sign the country is slowing down. Caterpillar shares are lower today as the firm is dependent on a strong mining and construction sector for sales, and the contraction in Chinese manufacturing doesn’t bode well for the company.

The US manufacturing PMI report was 53.8 in December, so little changed from the 53.9 reading in November. Today’s reading was a 15 month low.

Tesla shares are dropped today after the company missed its fourth-quarter deliver target. The company delivered 90,700 car in the latest quarter, just shy of investor estimates. The firm trimmed its price target on all models by $2,000 in order to offset the cut in the federal tax credit for purchasing electric vehicles. 


EUR/USD has endured a large sell-off on the back of ECB appointing temporary administrators for Banca Carige. The move raised concerns about the health of the Italian banking system, and the single currency itself. Traders are worried we could be in for another round of the eurozone debt crisis, and they are dropping the single currency.

GBP/USD has some under pressure due to the wider rally in the US dollar. The greenback is in demand as dealers are seeking a safe haven currency. The UK manufacturing sector saw a flurry of activity in December as firms put their orders in ahead of Brexit. The UK manufacturing PMI reading was 54.2, an improvement on November’s 53.1. 


Gold has rallied despite the large move to the upside in the US dollar. The Federal Reserve might have issued a slightly hawkish update in December, but some dealers feel the US central bank will take a less aggressive approach in 2019, and that is assisting the gold market. To a lesser extent, the uncertainty in global stock markets is assisting gold too, as dealers seek out safe-haven assets.

Oil has had a volatile session. It sold-off severely, and then rebounded. In 2018, Russian oil output hit its highest level in the post-Soviet era, adding to that, according to the Energy Information Administration, US oil production hit a record high in October. Fears of over-supply, coupled with fears slowing demand from China are likely to hang over the energy market.


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