Victoria Scholar, interactive investor's head of investment, runs through today's big stories and how financial markets are reacting.
European markets kicked off the week on a positive note with the DAX in Germany outperforming, rebounding from last week’s volatility as video-link talks set to restart today between Russia and Ukraine with hopes of a ceasefire supporting markets. While Ukraine continues to be the main driver for markets, investors also turn to central bank action this week with rate decisions due from the Fed, the Bank of England and the Bank of Japan from Wednesday onwards.
The FTSE 100 is staging more mutest gains this morning, having enjoyed its best weekly performance in three months last week driven by financial, mining and energy stocks. Strong GDP figures for January support the case for another rate hike from the Bank of England on Thursday. Meanwhile, over the weekend, chancellor Rishi Sunak called on British businesses to unwind their investment ties to Russia.
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China’s yuan hit a one-month low and Hong Kong’s Hang Seng index plummeted nearly 5% amid fears about the latest series of Covid infections. China is suffering the biggest wave since the start of the pandemic in 2020. Chinese tech stocks were hit hardest with the Hang Seng Tech Index plunging 11% with stocks such as Meituan (SEHK:3690), XPeng (NYSE:XPEV) and NIO (NYSE:NIO) slumping double digits.
A combination of rising Covid cases and slowing economic growth could prompt China’s central bank to cut interest rates as soon as Tuesday, going against the grain for global monetary tightening amid the backdrop of surging commodity prices and broader inflation.
Rio Tinto (LSE:RIO) is languishing at the bottom of the FTSE 100, down by almost 4% alongside Anglo American (LSE:AAL) and Glencore (LSE:GLEN), which are also under pressure. Rio Tinto announced plans to acquire the remaining 49% of Canada’s Turquoise Hill (TSE:TRQ) for around $2.7 billion. This represents a premium of around a third of Turquoise Hill’s closing price on Friday.
Following the recent surge in commodity prices, the deal will help Rio Tinto expand its copper and gold mining activities via the Oyu Tolgoi project, which is 66% owned by Turquoise Hill. Despite being Rio’s most important growth project, the Mongolian mine has also been a serious source of chaos, hit by a series of delays, ballooning costs and disputes with the Mongolian government. Today’s proposed deal could help pave the way for Rio to ramp up activity at the copper-gold mining project and reduce further problems.
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Oil prices are weakening by more than 2% with Brent crude close to testing key support at $110 a barrel as markets prepare for lift-off on US rates from the Fed on Wednesday. The US has backtracked on talks with Venezuela to provide alternative oil following a political backlash when news leaked of a secret mission.
Risk-on sentiment that is lifting European equities is also dampening trader appetite for oil as the downtrend looks set to continue after last week’s spike. There is a sense of optimism that talks negotiations between Russia and Ukraine could be heading towards progress, which would ease some of the supply concerns in the market. Plus the shift towards monetary tightening from the Fed could ease demand helping to reinstate some more balance to the market.
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