US markets recorded solid gains on Monday after a choppy trading session as investor sentiment improved with rebounding oil prices. Energy sector shares led the gains. Markets discounted disappointing economic news. The ISM report showed that manufacturing activity slowed in US, the manufacturing index fell to 53.5% in January from 55.1% in December, marking the worst performance in a year. At the same time, consumer spending didn’t increase with the falling oil price as it was widely expected - it fell 0.3% in December while personal income rose 0.3%. The Federal Reserve’s preferred inflation measure, the price index for personal consumption expenditures, fell 0.2% from November. The commerce Department report showed construction spending rose 0.4% in December, less than expected. The latest batch of economic data indicate that the US economic growth is slowing down. US dollar weakened against commodity currencies as oil rose. Today at 16:00 CET December Factory Orders will be released in US. The outlook is negative with the factory orders expected to decrease further after falling for four consecutive months.
European stocks edged higher on Monday. The gains were led by energy issues. The Markit PMI manufacturing report indicated the euro-zone manufacturing sector avoided contraction in January with activity expanding at a marginally higher pace compared with the previous month. After much investor anxiety about the negative impact of newly elected Greek government’s calls for Greek debt write-off on eruro-zone economy, Greek Finance Minister Yanis Varoufakis on Monday unveiled proposals to swap Greek debt for new bonds linked to economic growth. The proposal essentially is aimed at restructuring Greece’s 315 billion euros in foreign debt to ease the burden of repayment. Euro traded higher against dollar on Monday after the Greek Prime Minister Alexis Tsipras reassured the public that Greece would not leave the euro-zone. Today at 10:30 CET January Markit’s Construction PMI will be released in UK. The tentative outlook is positive with the construction sector expected to expand compared to the previous month. At 11:00 CET December Producer Price Index for Euro-zone will be published by Eurostat, the tentative outlook is negative with producer prices expected to fall for third consecutive month.
Nikkei is falling today after reports on US economic performance fell short of investors’ expectations. The airline companies and rubber product makers, which benefited from declining oil prices, continued to drop after oil prices rose strongly again on Monday. Yen traded lower against the dollar on Monday, pairing the gains following the report over the weekend, which showed China’s manufacturing activity contracted.
The Reserve Bank of Australia cut its cash rate today to 2.25% from 2.5% in a surprise move to keep a downward pressure on its currency. As a result, Australian dollar slumped against US Dollar and Japanese yen.
Oil continued to rise on Monday after recording an 8% gain on Friday, prompted by reports of another sharp decline in the number of drilling rigs in operation in US.
Gold futures were flat on Monday after the precious metal recorded its biggest monthly gain in three years last week. Gold rose more than 8% in January with increased demand for the safe haven asset as investors weighed the outlook for global equity markets on the backdrop of increased uncertainty and signs of slowing global growth.