China RRR cut boosts European equities

Further red tape cutting in China over the weekend has added a healthy glow to European markets.

Frankfurt financial district
Source: Bloomberg

European markets were greeted with the news that China has taken a further step down the road of stimulus; however, not in the style of the Western model of quantitative easing but in reducing the reserve requirement ratio. Many in the markets are interpreting the 1% size of the cut as a signal that there is more to come, and this should ease the red tape for Chinese banks and increase the growing Western trend of middle class indebtedness in the Asian powerhouse.

Following a weekend of meetings the International Monetary Fund has been making comments about Greece. A day without a debt deadline is more the exception to the rule for this nation as the debate over austerity continues to rage on.

The weekend has done nothing to cool the merger speculation surrounding InterContinental Hotels as the shares are up over 2% again following Friday’s rises. China’s RRR cut has given London-quoted miners a boost as the likes of Vedanta, Anglo American, BHP Billiton and Glencore have all spent the morning moving higher.

It is hardly a surprise but pre-election banter has swung its focus onto the financials with the Conservative party confirming it would look to sell off the taxpayers’ remaining interest in Lloyds back to the taxpayer, but at a discount to market price. This is a move reminiscent of taking from Peter to pay Paul.

The increased rhetoric about more aggressive taxing of the banks has also seen HSBC and Standard Chartered openly discuss their thinking of relocating to Asia. This would see them move closer to their core businesses, but also increasingly look like a more fiscally attractive proposition.

Morgan Stanley will be rounding off the US banks’ contribution to the US reporting season today as the focus will shift to the social media and technology sectors with IBM, Yahoo, Facebook, Amazon, Google and Microsoft all set to report during the week. To date, the banks have posted better-than-expected figures, and once again raising the debate surrounding how high the institutional analysts have set the bar or how impressive the US corporates have been.

Ahead of the open we expect the Dow Jones to start 117 points lower at 17,943.

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