Futures Lower On Lack Of China Stimulus; Oil Squeeze Continues; Gold Spikes Ahead Of ECB

In the aftermath of last week’s disappointing G-20 Shanghai summit, there was much riding on this weekend’s start of the China’s People’s Congress, and specifically what if any stimulus announcement Beijing will make; sadly for stimulus addicts China disappointed and after the unimaginative scope of growth proposals none of which it will come remotely close to hitting, it is hardly surprising that European stocks and US equity futures have taken a leg lower, even if Chinese stocks rose and certain commodities such as Iron Ore soared overnight on hopes China will either “rationalize” capacity or at least build some more roads to nowhere. Others, such copper were less lucky.

While few will admit, what is happening is that China has effectively confirmed the current reform cycle has been a failure and is going back to square one: as Nicola Marinelli, a fund manager at Pentalpha Capital In London told Bloomberg, “China is serving more of the same solution, more stimulus, but it just makes things worse later and it’s becoming apparent that it cannot sustain the official growth rate.

Elsewhere, European banks are starting to slide now that attention turns to Thursday’s ECB meeting when Mario Draghi is expected to further cut the European deposit rate by 10 to 20 bps, in the process further impairing bank profits. On this Marinelli said, “the ECB might also disappoint, GDP growth remains sub-par and we don’t know what to do about it, while a higher oil price means higher inflation soon and hence less headroom for central banks.”

Aside from equities, the oil ramp has shown some further strength overnight as “weak hand” shorts continue to be squeezed, while gold’s levitation continues on concerns how other central banks will respond in the global currency war in retaliation to the ECB’s further monetary easing this week. 

WTI extends gains to 2 month highs after the U.S. rig count fell to lowest since Dec. 2009. Brent touches highest since Dec. amid speculation ECB will increase stimulus when it meets Thursday. “On the supply-side we are continuing to see a freefall in the rig count, which confirms what has been the U.S. supply outlook for some time that we’d see production stop gaining and decline this yr,” says Danske Bank senior analyst Jens Pedersen. “The rate the rig count has fallen means output may decline harder than what was expected.”

As of this moment, according to Bloomberg, European shares fell with metals, while the dollar and German bonds climbed, as investors assessed the impact of China’s growth plans and the potential for European Central Bank stimulus measures this week. Miners led declines in the Stoxx Europe 600 Index, with Glencore Plc and Anglo American Plc among the biggest losers, a turnaround from last week’s rally. Copper fell from a four-month high, while investors continued adding to gold holdings. French bonds led gains in euro-area government securities, while the euro sank on speculation the ECB will lower the deposit rate and boost bond purchases. Crude extended last week’s gains.

The Stoxx 600 was down 0.8 percent as of 11:06 a.m. London time, while copper sank 0.8 percent. The euro fell 0.5 percent to $1.0956 and yields on German 10-year bonds fell three basis points to 0.2 percent.

Where the markets stand now:

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Looking at regional markets, we start in Asia where stocks traded mostly higher following last Friday’s positive close on Wall St. where firm Non-Farm Payrolls figures and a resurgence in the commodities-complex boosted sentiment. ASX 200 (+0.93%) and the Shanghai Comp (+0.65%) was led higher by commodities after WTI broke above the USD 36/bbl level and iron ore extended on gains to hit limit up in Shanghai. Elsewhere, Nikkei 225 (-0.44%) underperformed as large exporter names were pressured by JPY strength.

Chinese Premier Li announced a GDP growth target range of between 6.5%-7.0% for this year vs. about 7.0% target last year, which is the first time China has opted to target a growth range in 20 years. Premier Li also announced details of China’s 5 year plan in which it aims for minimum growth of 6.5% annually through to 2020 and will also introduce a range of tax cuts this year. (Nikkei)

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