Market Overview

Shutdown, Brexit, China, And More: 5 Things The Global Markets Are Talking About Today


Global equities started the week on the back foot, as capital markets weighed political developments against corporate earnings that have surpassed many analysts expectations, despite ongoing signs of a global economic slowdown.

This is expected to be an action-packed week amongst the various asset classes. Investors will face some key tests, including Chinese Vice-Premier Liu He meeting with U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin on Wednesday and Thursday.

The British parliament is expected to vote on amendments to Prime Minister Theresa May's Brexit deal with the EU. On Wednesday, the EU Parliament will debate Brexit.

Also on Wednesday, investors will be digesting the Federal Reserve's latest monetary policy meeting outcome. If the Fed is to be keep their views unchanged this week, it should maintain a "cautiously friendly environment" for risk assets. The market has priced in no rate hikes stateside in 2019. Fed Chair Powell will hold a news conference after the FOMC rate decision.

While on Friday, the grand-daddy of US economic indicators, non-farm payrolls (NFP), will be delivered.

Also, in the background there is a slew of corporate earning's announcements, including most of the tech giants.

With all this in mind, here are five things the global markets were talking abour on Monday.

1. Asian Equities See Red

In Japan, the Nikkei fell overnight as a stronger yen weighed on the broader market. However, losses were limited as investors remained reluctant to enter into larger positions ahead of Q3 corporate earnings reports this week. At the close, the Nikkei share average had dropped 0.6 percent, while the broader Topix shed 0.7 percent with 32 of the 33 subsectors in the red.

Down-under, Australia was closed for a bank holiday. In Korea, the Kospi stock index ended little changed overnight amid investor caution ahead of the FOMC rate decision and Sino-US trade talks. The index settled largely unchanged.

In China, equities ended lower on Monday as downbeat industrial profit and weaker GDP data last week reinforced concerns about a slowing economy and this despite the People's Bank of China (PBoC) freeing up a potential $37 billion for bank lending and while a new CEO was named to lead the country's main securities regulator. At the close, the Shanghai Composite index was down 0.18 percent, while the blue-chip CSI300 index ticked only 0.02 percent lower. The Hang Seng index ended nearly flat.

2. Oil Falls On US Rig Count And Weak China Data

Oil prices were under pressure ahead of the US open, down over 1 percent after data from Friday showed that US companies added rigs for the first time this year, a sign that crude output may rise further, and as China reported additional signs of an economic slowdown.

Brent crude oil futures were at $60.74 a barrel, down 1.46 percent, while U.S crude oil futures were at $52.84 per barrel, down 1.58 percent, from Friday's close.

A higher US production rate continues to eat away at OPEC+'s efforts to support crude prices.

US crude oil production rose to a record 11.9M bpd in Q4 2018 and there is evidence that US production rates will increase further, especially when you see data from Baker-Hughes showing that US energy firms raised the number of rigs looking for new oil for the first time this year to 862 — an addition of 10 rigs. The US is now the world's largest oil producer.

A global economic slowdown supported by a persistent weakness in Chinese data and egged on by a trade dispute between U.S and China is also weighing on fuel demand-growth expectations.

China is trying to stem the slowdown with aggressive fiscal stimulus measures, however, there are concerns that these efforts may not have the desired effect as China's economy is already burdened with massive debt.

3. Eurozone Bond Yields Expected To Remain Near Month Lows

Eurozone sovereign bond yields are expected to remain within striking distance of this month's lows as a number of factors should be supportive of lower yields this week: ECB speakers are expected to deliver dovish rhetoric, aided by the the Brexit vote, Wednesday's FOMC decision, global mixed data and month-end index flows. These are all reasons enough to keep eurozone government bond yields atop of their two-year lows.

The slowdown in the eurozone's economic growth is especially supportive of German Bunds. The 10-year Bund yield remaining unchanged at 0.14 percent, coupled with last week's decline in January PMI's/Ifo is evidence that investors should not be expecting an economic revival in the near-term.

4. Dollar Under Pressure

This is a very sensitive geopolitical week for the FX market. Investors should expect some nervous price moves to occur at inconvenient times with little liquidity.

The markets focus on Wednesday will be the Fed's rate decision with dealers expecting the Fed to maintain the cautiously friendly environment for risk assets which has been the main trait in January so far.

GBP/USD is a tad softer ahead of the next Brexit vote. The key focus will be on the possible amendments to May's Brexit deal.

EUR/USD is little changed and is expected to continue to trade between €1.13 and €1.15 in the near term as concerns about the US economy and Fed's policy offset eurozone economic weakness, which should curtail most dollar gains and the euro's losses. The Fed is likely to reaffirm "patience on rates and its data dependency," even as US Q4 GDP data is expected to highlight a stronger economy.

5. Eurozone Bank Lending Stable Last Month

Data from the ECB this morning showed that Bank lending to businesses and households in the eurozone was stable in December.

Lending to "non-financial" corporations grew at an annual rate of 4 percent m/m and was unchanged from the previous month. Lending to eurozone "households" was also steady, growing at an annual rate of 3.3 percent in December.

The eurozone economy is heavily dependent on the availability of funding. However, lending rates have remained well below the pre-crisis levels. In 2007 and in H1 of 2008, bank lending to businesses was running at rates well above 12 percent.

Related Links:

Mid-Afternoon Market Update: Dow Falls 280 Points; Avalon GloboCare Shares Surge

36 Stocks Moving In Monday's Mid-Day Session

The preceding article is from one of our external contributors. It does not represent the opinion of Benzinga and has not been edited.

Posted-In: contributor contributorsBonds Eurozone Commodities Forex Markets


Related Articles

View Comments and Join the Discussion!
Lightning Fast
Market News Service
$199 Free 14 Day Trial

U.S. Sanctions Against Venezuela? ETFs To Top And Flop

3 Reasons Why Amazon Is Reportedly Interested In Home Design