A Subdued Start to the Week as Central Bank Decisions Loom

In Europe
The week commenced at a slow yet generally positive pace, contrasting with a mixed Asia session.

Chinese markets experienced a notable decline due to a failure to cut loan rates, impacting commodity prices.

The Hang Seng, in particular, has slid further today and is currently down over 12% since the end of last year.

This sluggish start reflects a cautious approach in anticipation of significant risk events in the coming weeks. The Bank of Japan and the European Central Bank are set to meet this week, followed by the Fed and the Bank of England next week.

The weakness observed in China is contributing to a parallel decline in basic resources, shedding light on the FTSE100’s struggles this year, resulting in a decline of over 3% this month.

Mining companies, particularly Rio Tinto and Glencore, are once again exerting downward pressure on UK markets. Glencore shares have dipped to 18-month lows, amplifying the FTSE100’s underperformance.

Endeavour Mining is facing a downturn following a disappointing Q4 performance, although there is a more optimistic outlook for gold production in 2024, particularly in the second half of the year.

Natural gas prices are experiencing continued pressure, nearing the lows seen last summer, impacting the performance of companies like BP and Shell.

On a positive note, the rebound in the housebuilders sector persists, led by Persimmon and Barratt Developments, following various broker upgrades to the sector last week.

The United States
After reaching new record highs last week, U.S. markets have resumed their upward trajectory, marking the beginning of a significant period for expectations surrounding company earnings and central bank rate policies.

Recent days have witnessed new record highs for tech giants like Nvidia and AMD, with Meta Platforms also achieving another record high today. Notably, Meta Platforms has fully recovered from its 2022 losses, trading as low as $88 in October 2022.

Super Micro Computers has extended its gains from last week, surpassing expectations on Q2 numbers and raising its guidance for the year due to substantial demand for its AI servers.

Conversely, Boeing shares experienced a dip in early trade following reports over the weekend that U.S. regulators instructed airlines to inspect door plugs on an earlier model of the 737, the 900ER model. This comes as scrutiny intensifies over Boeing’s Q&A processes.

Forex
The currency markets have begun the week on a subdued note, witnessing a slightly firmer Japanese yen as investors anticipate tomorrow’s Bank of Japan decision on monetary policy.
Expectations are modest regarding any immediate signs of a policy pivot, although there remains a possibility of the central bank considering tightening monetary policy from the current -0.1%.

The urgency to act has somewhat lessened due to expectations of rate cuts from neighboring central banks in the coming months.

Similarly, the Euro has experienced a muted session in anticipation of this week’s European Central Bank (ECB) rate meeting.

In the 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 disruptions 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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