Having enjoyed a strong end to last week on the surprise election result, UK indices are bouncing again. This time miners are in the ascendant, after China used one of the tools at its command and cut interest rates. However, the cut is not enough to spark a major rally, and with euphoria of Friday giving way to concerns relating to Scotland and the UK’s place in the EU, we could see technical and fundamental factors combine to keep the FTSE from breaking through the key 7100 area yet again.
The picture across the eurozone is less positive, and there are no prizes for guessing the reason why. Greece once again stands on the naughty step at the latest Eurogroup meeting, while a major repayment to the IMF looms. It seems unnecessary to go over the arguments at this stage, since the most likely outcome is another fudge that kicks the can a little further down the road, without actually making any progress in solving the underlying issues.
The most exciting thing that can be said about today’s Bank of England decision is going to be the fact that it is being issued on a Monday rather than a Thursday, and the real focus for sterling will be on Wednesday when the latest unemployment data are released.
US futures are so far pointing to a relatively quiet open, after jobs data that helped to restore some confidence in the American recovery but did little to change expectations regarding the timing of the first rate increase. Earnings season is beginning to wind down, while the economic calendar is almost barren for today. Despite warnings of a bubble and fears about what rising rates will do to stocks, forward earnings ratios in US markets still look compelling, and there is little reason just yet to abandon stocks for the supposed haven of government bonds.
Ahead of the open, we expect the Dow Jones to start 40 points lower, at 18,151.