Markets Upbeat as China Maintains Interest Rates

Includes: GE, UCG
by: Proactive Investor

Markets have started the week on a slightly upbeat note Monday, feeling relief after China decided not to increase its main interest rate over the weekend, having settled instead for Friday's increase in the bank reserve requirement rate.

The move came despite a surge in consumer price inflation reported from the Asian giant over the weekend, hitting a 28-month high in November at 5.1% year-on-year. The Chinese government did say it will step up its efforts to stabilise prices next year, however, with the prospect of monetary and fiscal tightening still very much in the cards.

The economic calendar is all but empty today as far as North America is concerned, with Canadian Capacity Utilisation at 0830 EST the only real number due today -- although a couple of European speakers are due later in the day, including ECB President Jean Claude Trichet, which may be looked at as far as FX markets are concerned.

U.S. stock futures have took their lead from Asian and European equities overnight following the lack of a rate hike from China, although now pointing to a flat open for Wall Street as earlier gains were pared during the session.

On the corporate front, General Electric (NYSE:GE) has agreed to buy the U.K. gas and oil services group Wellstream for around £800 million, as part of its ongoing expansion into the energy services sector. GE will pay 786 pence per share, having had its previous 750p offer rejected, including a special 6p per-share dividend.

Elsewhere, the U.S. regional supermarket group A&P (GAP), whose range of stores includes the Food Emporium, filed for Chapter 11 over the weekend, hoping to gain protection from its creditors in order to carry through the reorganisation of the business under new management, following mounting losses at its 395 stores in the Northeast and Mid-Atlantic states.

Core safe haven sovereign bonds are easing off a little today, with U.S. Treasury, German Bund and U.K. Gilt yields all climbing around 2 to 5 basis points (bps). Concerns are mounting about eurozone members' ability to refinance debt next year, after the Italian bank UniCredit (UCG) said over the weekend that EU countries will have to refinance or repay €560 billion worth of debt in 2011, €45 billion more than this year and the highest amount since the introduction of the single currency. This raises the possibility that the peripheral countries already under pressure, particularly Portugal, may have to seek out emergency funds from the eurozone bailout fund in a similar way to Ireland and Greece.

The U.S. dollar continues to see gains today as higher Treasury yields and buoyant consumer outlook data on Friday underpins price action. That said, the euro is making gains in most currency pairs amid some mild risk appetite for the currency block, up around 25 pips against the dollar and over 50 ticks against sterling. Sterling has been feeling some pressure during the session following U.K. NSA Producer Price data this morning, which came in line with expectations, while the Japanese Yen has been losing some of the Asian safe haven demand it has seen the past few sessions, with the dollar-yen rate struggling to break through ¥84.35.