Dovish policy all the rage

In mid-morning trading, the FTSE 100 is 20 points lower, weighed down by concerns about future Chinese growth. 

Source: Bloomberg
  • China looks at revising growth target
  • Bank of England trims its hawkish talk
  • Aberdeen Asset Management jumps

Last week’s rally is looking a little tired this morning, despite a global backdrop that remains supportive for equity markets. The ECB and Chinese central bank turned decidedly dovish last week, but some of the enthusiasm created by this has waned following comments from China’s premier that the 7% growth target was becoming less important.

Essentially, we should read this as China’s government admitting that 7% is now too optimistic as a target, with Premier Li’s remarks acting as an indication that we should all adjust ourselves to the reality of weaker growth in this hitherto unstoppable powerhouse.

This explains the negative reaction in mining shares in London this morning, which are once again giving back recent gains. Even the Bank of England is joining in the renewed loose monetary policy atmosphere, with comments from Mark Carney regarding rate hikes reflecting what the market was already expecting; namely that 2015 is a non-starter for a UK rate hike, and even 2016 is starting to  look rather doubtful.

Shares in Aberdeen Asset Management soared to the top of the index this morning, as the firm denied reports it was on the lookout for a buyer. Life has become much tougher for those working in emerging markets, and with the share price down 28% from the year’s highs, potential buyers will be keen to assess whether they have a bargain on their hands.

Trading at 16 times earnings, the firm may well look like a decent bet, even when the ongoing travails of China and others are factored in.

With just new home sales on the economic calendar this afternoon, and no heavyweight earnings to speak of, we may see US markets follow Europe’s drift down when they open this afternoon. The Federal Reserve meeting this week is still the main event, although even here excitement is likely to be lacking given the general view that a 2015 hike is off the cards.

Ahead of the open, we expect the Dow Jones to start at 17,596, down 50 points from Friday’s close.

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