A rather choppy morning session in Europe gave way to a rather more sedate afternoon session as US traders returned to their desks after their long weekend break.
The reasons for this morning’s sharp sell-off weren’t entirely clear, but have been attributed to reports that the German regulator Bafin asked two German financial institutions, including Deutsche Bank to model a break up scenario, to split out trading operations, from its retail unit.
Rumours, swiftly denied that Bundesbank Chief Jens Weidmann had resigned also fed into the skittish nature of trade, though better than expected ZEW figures helped pull stocks off their lows.
The nature of this morning’s move can also be attributed to the multi-year lows in the VIX which suggests that investors are under protected against sharp market falls, trading at its lowest levels since 2006, and pre crisis. These lows suggest some complacency amongst market participants about the likelihood of further stock market gains.
The worst performing sectors today have been the telecoms and technology sector with Vodafone lower after US partner Verizon posted numbers which missed expectations.
The biggest fallers have been in the mining sector with Mexican silver miner Fresnillo falling sharply after projecting stable production for 2013. Fellow miner Polymetal has also felt the heavy hand of selling pressure.
FT owner Pearson has remained under pressure following on from yesterday’s underwhelming trading statement.
On the plus side B&Q owner Kingfisher is trading higher after a price target upgrade from Paribas.
Defensives have also outperformed with Shire and medical devices company Smiths Group higher, on the back of a positive read across from US pharmaceutical giant DuPont.
US markets returned from their long weekend break slightly lower after Friday’s late surge ahead of a raft of earnings announcements as investors reacted with disappointment to announcements from Johnson and Johnson and Verizon.
Du Pont on the other hand has seen a positive reaction despite announcing a 70% drop in earnings slightly better than expected as profits came in at $0.12c a share above expectations of $0.07c.
Analysts are eagerly awaiting the results of tonight’s IBM and Google earnings announcement with some concern that we could see a miss on both.
Economic data was a disappointment with the Richmond Fed manufacturing contracting while December existing homes sales dropped 1%.
The Japanese yen has been the biggest gainer today, not altogether surprising in a classic sell the rumour and buy the fact kind of way. The decision by the Bank of Japan to defer the start of its unlimited program of asset purchases until 2014 has given traders sufficient reason to take profits, however it remains unlikely to change the overall direction of travel of yen weakness in the longer term.
The single currency surprisingly has struggled for direction despite the much better than expected ZEW survey from Germany and the Eurozone. The high number wasn’t really that much of a surprise given the recent recovery in equity markets, drop in peripheral bond yields and higher euro.
The pound has continued to come under pressure hitting its lowest levels against the euro
in nearly a year after public sector borrowing came in slightly above expectations with tax receipts once again declining and spending rising.
While oil prices got a brief push higher from a higher ZEW reading out of Germany and Europe this morning the disappointing US data has to some extent helped temper these gains as concerns about the US manufacturing sector once again trouble investors.
Copper prices have got a lift from this morning’s decision by the Bank of Japan to adopt unlimited easing while the ZEW also helped, however upside is likely to be tempered by stockpiles which still remain at historically elevated levels.
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