Market commentary: China leads the way as shares rally

European shares finished lower on Monday, as they proved unable to maintain the momentum that saw Asian equities reach a two-month high.

Investors admitted that a rebound in stocks seemed worn out, as they looked ahead to the highly anticipated European Central Bank meeting, expected to deliver more stimulus to the economy. Meanwhile, sharp gains in energy and materials stocks lifted the main US indices, which are now on track to extend Wall Street’s winning streak to five straight sessions.

Monday was a good day in China, with shares rallying for a fifth consecutive day. Investors focused on China’s plans to prop up the slowing economy, boosting stocks in sectors such as construction, technology and pharmaceuticals. Prime Minister Li Keqiang spelled out a new five-year economic plan that included an average growth target of 6.5 to 7 per cent.

One of the big winners of the day was iron ore, as prices for this commodity soared to the highest ever recorded. This surge came as a result of Chinese policymakers signalling their willingness to support economic growth and boosted the outlook for steel consumption. Shares of Cliffs Natural Resources, a leading iron ore supplier, soared 19% on Monday, and Brazilian miner Vale, another major iron ore company, jumped 10%.

Monday’s surge was accompanied by a rally in producer stocks. Oil prices reached this year’s high, as prices peaked about $40 a barrel. Brent crude rose over 5%, to $40.73 a barrel as producers sought a new anchor price for oil, after a sell-off that lasted long enough. Companies such as Rio Tinto Group and BHP Billiton both climbed over 5% on the day.

Other stocks trading in the green included Chesapeake Energy and Southwestern Energy, with shares in both companies jumping more than 8% in early trade, making them the top gainers on the S&P 500.

Another mover on Monday was SeaDrill Ltd, as shares surged impressively. The chief executive of the Norwegian oil drilling company told Reuters he expects refinancing from banks to come through during the second quarter, and said that short sellers are “beginning to panic” at the prospect.

There is a sense of apprehension and anxiety in the air over the policy meeting of the European Central Bank, set to be held on Thursday. ECB President Mario Draghi is about to take on the 11th round of the ECB’s fight against inflation. With inflation falling back below zero, investors are expecting further stimulus from the central bank to reignite price growth in the Eurozone.

Since becoming ECB President in November 2011, Draghi has announced no fewer than eight interest-rate cuts, two long-term loan programmes for banks, and an asset purchase programme that has been both expanded and extended, citing the risk of weak price growth. He has also introduced forward guidance on rates, eased refinancing operations and created an emergency bond-buying plan for stressed economies.

This article was issued by Rebecca Naudi, Trader at Calamatta Cuschieri. For more information visit, www.cc.com.mt .The information, views and opinions provided in this article are being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice. Calamatta Cuschieri Investment Services Ltd has not verified and consequently neither warrants the accuracy nor the veracity of any information, views or opinions appearing on this website.