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Natural resource stocks slump
The possibility of another round of the Greek debt crisis and a slide in natural resources stocks is a worrying scenario for markets. The admission by the Greek finance minister that the country is ‘bankrupt’ set the wheels in motion for a day of selling, and the failed attempt by Beijing to spur economic activity by slashing the central banks’ lending requirements cemented it.
The mining sector initially jumped on the back of the news from Beijing, but it isn’t nearly enough to coax traders into buying mining stocks and the sector is squarely in the red. Eurozone equities are on edge as Greece is at loggerheads with Frankfurt again, and neither side wants to back down.
US markets head higher
The Dow Jones is moving higher, as the US has been relatively protected from the carnage in Europe. The ADP unemployment report may have missed analysts’ estimates but it still came in above the 200,000 mark, which sets the market up for the jobs report on Friday.
Shares in heavy machinery manufacturer Caterpillar didn’t bat an eye after China loosened its lending policy. Mining companies won’t be placing new orders for equipment any time soon while metal prices are weak.
The record costs of recalled vehicles couldn’t put the brakes on General Motors’ rally after the carmaker’s fourth-quarter results topped analysts’ estimates. The commitment that GM’s European division will be profitable next year and the jump in dividend accelerated the stock’s rally.
Copper receives a boost
Copper received a jolt after the Chinese central bank cut the reserve requirement ratio in an effort to spark more aggressive lending policies by banks. Beijing knows the glory days are over and the country is loosening monetary policy to encourage economic activity, but traders are not buying into it. The announcement sparked short-term buying of the red metal, but it was short-lived as it will take a lot more to revive coppers’ decline since July.
Oil has reverted back to its old habit of trading lower after four consecutive days of gains. The energy has yet to regain the confidence of the market and traders will be wary of any moves higher.
UK services data lifts pound
The surge in UK services in January sent sterling higher against the dollar, as the sector's expansion has helped the UK economy catch up to the US. The $1.52 level was cleared quickly as the service sector accounts for over three-quarters of the British economy, and the report is proof that the ailing eurozone has not dragged the UK down with it.
The euro is back in the red after Yanis Varoufakis described Greece as ‘bankrupt’, and as refreshing as it is to have an honest statement from a politician it has done the single currency no favours. Mr Varoufakis may have had a good start to his European tour but brokering a new deal over debt with Germany will be a different story.