Chinese sell-off seeps into Europe

The week has started on a negative note as declines in China slip over to the Western markets.

Shenzhen stock exchange
Source: Bloomberg

The decline in Asia overnight has sent stocks lower in Europe. The lowering of the yuan against the dollar sparked concerns that the Chinese economy is cooling off and monetary easing is required. Investors are mindful that China will release a raft of economic data (FX reserves, manufacturing PMI, non-manufacturing PMI and services PMI) between Tuesday and Thursday and seeing as the economy is slowing down, traders would rather exit their long positions ahead of the announcements.

Should the FTSE 100 stay under 6065 further losses are possible and bears will be looking towards 6033 and 6000. The DAX is the worst performer in the eurozone this morning and 9317 and 9225 are the next major support levels on the horizon.

Sterling continues to suffer at the hands of the dollar, as Iain Duncan Smith’s support of the UK leaving the EU adds to the Brexit uncertainly. The additional worry of another high ranking Conservative MP backing the leave campaign will keep the pound under pressure. While GBP/USD remains under $1.40 its outlook will be bearish and $1.3841is the next major level of support in sight.

Strong retail sales from Germany failed to prevent a decline in EUR/USD. It is a worrying sign that positive economic indicators from Europe’s strongest economy can’t prevent a drop in the currency.

Traders are focused on the European Central Bank (ECB)’s meeting on 10 March, and Mario Draghi dropped big hints that more easing is on its way, but the ECB chief does not always keep his promises. While EUR/USD remains under $1.10 its outlook will be negative, and $1.0892 and $1.0870 are the next big support levels in sight.

Gold is moving higher again as traders adopt a risk-off strategy and the metal is still in the upward trend that has been in place since the start of the year. Buying the dip has been a popular tactic recently and bulls will be looking towards $1234 and $1243.

Oil has swung to negative territory after enjoying a positive move overnight. The rig count report by Baker Hughes showed the number of active rigs in the US dropped for the tenth consecutive week on Friday as the drop price has led to lower production rates. Sellers of Brent will be keeping an eye on $35 and shorter’s of US light will be looking towards $32.50. 

 FTSE risers and fallers (as of 9.30am)

Company % change Index points
Glencore +2.61 +1.52
Randgold Resources Ltd +3.51 +0.81
Anglo American +1.72 +0.39
Rio Tinto +0.32 +0.28
Sky +0.58 +0.24

 

Company % change Index points
HSBC Holdings -3.23 -11.49
Lloyds Banking Group -1.77 -3.19
BP -1.17 -2.91
AstraZeneca -1.4 -2.9
Royal Dutch Shell -1.01 -2.7

The day ahead

Economic data:

3pm – US pending home sales (January): MoM expected 0.9%, prior 0.1%. YoY expected 3.89%, prior 4.2%.

11.30pm – Japan unemployment (January): expected 3.2%, prior 3.3%.

Corporate reporting:

US: Hertz Global Holdings Inc

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