Brent hits 3-year high, PBOC cuts interest rate

European stocks are set for a stronger start on Monday after Beijing eased monetary policy.  The price of Brent crude oil has hit a 3-year high as concerns over Omicron fade. 

• China’s central bank cuts interest rates by 10 basis points
• Uncertainty surrounds UK Prime Minister Boris Johnson’s future 
• Oil prices rise to a multi-year high on tight supply, easing demand concerns

China GDP

China reported 1.6% QoQ GDP growth, ahead of the 1.1% expected and well up from the previous quarter’s 0.2%. Industrial production in the world’s second-largest economy also printed ahead of forecast at 4.3% YoY, also beating the 3.8% increase the previous month. However, more worryingly, Chinese retail sales fell short of analysts’ estimates, rising 1.7% YoY in December, down from 3.9% in November. Consumer spending appears to be the weak link in China and has slowed significantly as the government tightened virus restrictions. An outbreak of Omicron in January suggests that consumer spending and sentiment could deteriorate further, which has seemingly prompted concerns at the central bank.

Following the data, the PBOC, and in stark contrast to other central banks across the globe, cut its interest rate for the first time in two years. China is also seeing high inflation but policymakers are instead focusing on growth and limiting contagion from the property sector. 

FTSE lags peers

The supportive stance by Beijing is helping to lift sentiment, setting European markets on track for a positive start to trading. The FTSE is looking to mildly underperform its European peers as Prime Minister Boris Johnson struggles to cling to power in light of the “party-gate” scandal. The British leader’s future hangs in the balance amid a public backlash over parties in the Downing Street office whilst the rest of the UK was under lockdown restrictions.

Economic data is in short supply today. Furthermore, the US equity and bond markets are closed for Martin Luther King day so trading could slow later this afternoon.

Brent hits 3-year high

Oil prices are pushing higher, building on gains of over 6% across last week, with Brent hitting a three-year high in early trade on Monday. Oil prices are being supported by expectations that oil supply will remain tight, as producers struggle to ramp up production to meet the upwardly revised OPEC+ production quota limits. Limited supply, combined with demand seemingly unaffected by rising Omicron cases is helping to buoy oil prices. Investors are also shrugging off news that China will release strategic oil reserves in the coming weeks, in a coordinated move with the Biden administration. How much of its strategic reserves China releases will depend on the price of oil at the time.

BoJ rate decision

The Bank of Japan is due to announce its monetary policy decision. The central bank is expected to keep interest rates on hold in negative territory and the asset purchase program untouched. However, there are growing expectations that the central bank could upwardly revise its growth and inflation outlook. Policymakers are also rumoured to be considering when they can start forewarning an interest rate rise. Although with inflation at 0.9%, short of the BoJ’s 2% target, a move this year still looks unlikely. USD/JPY is rebounding off a three-month low reached last week.