Markets choppy amid Chinese recovery

The worrying start to 2016 has continued today, with strong selling pressure characterising this morning session, only for the FTSE to creep back towards positive territory as we head towards the European close. 

Source: Bloomberg

Unfortunately, the Chinese ‘circuit breaker’ mechanism triggered yesterday served to merely lock-in losses, with Chinese shares rallying heavily today. The fact European markets were selling heavily in the days leading to yesterday’s dramatic selloff hints that perhaps there is something deeper at hand aside from China. This notion is enhanced by the early European selloff today in the face of rallying Asian markets.

The euro has lost almost 1% today, as the single currency finally begins to unwind the dramatic appreciation caused by a somewhat underwhelming European Central Bank announcement back in early December.

Disappointing inflation data showed that the eurozone continues to deal with disinflation despite efforts to revive consumption and investment. There is no doubt that Mario Draghi would have liked to do more in December, and thus with each underwhelming release it leads markets to believe that perhaps further action could be on the cards.

It appears that Sainsbury’s could be looking elsewhere as increased competition in the supermarket sector has pushed the board towards an approach for Home Retail, the parent company of Argos, Habitat and Homebase.

Despite being the only top four supermarket to have gained market share in Q4, the entry of Lidl and Aldi into the mainstream means that margins continue to diminish, knocking future profitability.

A recent tie-up between Argos and Sainsbury’s shows that synergies could exist, yet ultimately this could be more about Sainsbury’s feeling the heat and wanting to (at least partially) get out of the kitchen.

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