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London open: Stocks decline as BIS warns of “gathering storm” in global economy
The FTSE 100 was on the back foot on Monday after the Bank of International Settlements (BIS) warned of a “gathering storm” in the global economy.
In its latest quarterly report Swiss-based bank BIS said the global economy could spiral downwards as markets lose faith in the “healing powers” of central banks.
BIS said recent policy measures by the world’s central banks was not bringing confidence to the markets amid concerns over China’s economy and the slump in oil and commodity prices.
Head of the BIS monetary and economics department, Claudio Borio, said central banks are running out of tools to tackle sluggish growth as interest rates are taken negative. Bario added that mounting debt, particularly in emerging markets, pointed to a “gathering storm”.
“The latest turbulence has hammered home the message that central banks have been overburdened for far too long post-crisis,” Borio said.
“We may not be seeing isolated bolts from the blue, but the signs of a gathering storm that has been building for a long time.”
Connor Campbell, financial analyst at Spreadex, said the remarks do not bode well for the European Central Bank’s policy meeting on Thursday, which “already faces a weighty set of expectations”. The market is pricing in a 13 basis point cut to the deposit facility rate, a six-month extension of quantitative easing and a £10bn increase in pace of QE.
On Monday’s agenda, a report showed German factory orders fell 0.1% in January from a month ago, better than the 0.3% decline that was forecast by analysts.
A report on Eurozone investor confidence is due at 0930 GMT and the US sees Federal Reserve policymakers Lael Brainard and Stanley Fischer speak at separate events at 1700 GMT and 1800 GMT respectively.
In company news, Anglo American’s shares fell after UBS downgraded the stock to ‘sell’ from ‘neutral’, saying the risk/reward was not attractive.
Old Mutual jumped amid reports that it was planning a £9bn split into numerous standalone companies, which could lead to a takeover battle for some of its biggest operations. The company responded to reports by saying that “all options for the strategic review are being considered, but no decision has yet been made”.
Meanwhile, oil prices gained with Brent crude rising 1.17% to $39.18 per barrel and West Texas Intermediate increasing 1.23% to $36.37 at 0913 GMT.
