Europe climbs as commodity prices slump and Bitcoin stabilises

·4-min read
SUZHOU, CHINA - DECEMBER 9, 2020 - Aerial photo taken on December 9, 2020 shows a ship unloader unloading iron ore imported from Australia at an iron ore operation terminal in Taicang Port in Suzhou, East China's Jiangsu Province, China.- PHOTOGRAPH BY Costfoto / Barcroft Studios / Future Publishing (Photo credit should read Costfoto/Barcroft Media via Getty Images)
China's most-traded iron ore futures contract in Dalian extended loss to more than 9% on the back of the news, while iron ore for September delivery slid as much as 9.5%. Photo: Costfoto/Barcroft Media via Getty Images

Stocks in Europe pushed higher on Monday as commodity prices fell and cryptocurrencies stabilised after an unsteady weekend.

In London, the FTSE 100 (^FTSE) close 0.5% higher, while the French CAC (^FCHI) was 0.3% higher in Paris.

The German DAX (^GDAXI) was closed for Pentecost/Whit Monday. It was a quieter trading day for Europe as markets in Switzerland, Denmark, Norway, Belgium and Austria were also closed for a public holiday.

Commodity prices suffered after China announced a new crackdown on "speculators and hoarders" to deflate the boom in raw materials.

China’s National Development and Reform Commission (CNDR) issued a stern warning against commodity price manipulation, vowing to show “zero tolerance” for monopolies in the markets.

“This round of price increases is the result of multiple factors, including international transmission but also have many aspects reflecting over-speculation,” it said.

China's most-traded iron ore futures contract in Dalian extended losses to more than 9% on the back of the news, while iron ore for September delivery slid as much as 9.5%. Steel and copper prices also tumbled.

Initially the FTSE's mining stocks held up well. But by the end of the session all bar Glencore (GLEN.L) were notably in the red, with BHP Group (BHP.L) down 0.5%, and Antofagasta (ANTO.L) slipping 0.9%.

Watch: Iron ore rally stutters as China seeks control

Richard Hunter, head of markets at Interactive Investor, said: “There is increasing evidence of blockages in the economy as the strength of demand outpaces available supply. Whether this be raw materials or labour, the pressures are clearly inflationary.”

He added: “The question which is currently perplexing investors is whether this is a temporary effect as supply catches up with demand quickly, or whether there are wider factors at play, such as higher prices given the current trend towards de-globalisation, exacerbated by the pandemic.”

On Wall Street, the S&P 500 (^GSPC) was up 1.1% by the time Europe closed and the tech-heavy Nasdaq (^IXIC) had risen 1.5%. The Dow Jones (^DJI) edged 0.7% higher, ensuring that a 35,000 close remained a possibility.

In bond markets, the yield on the benchmark 10-year Treasury note declined to 1.620% on Monday from 1.629% on Friday.

The Dow posted its fourth negative week in five last week, while the S&P registered two straight weeks of losses for the first time since February. The Nasdaq Composite gained 0.31%, breaking a four-week losing streak.

Read more: Bitcoin continues downward spiral after volatile week that crashed crypto market

Asian shares opened cautiously on Monday but closed mixed as investors awaited key US inflation readings for guidance on monetary policy.

MSCI's broadest index of Asia-Pacific shares outside Japan dipped in slow trade. The Nikkei (^N225) climbed 0.2% while the Hang Seng (^HSI) fell 0.3% and the Shanghai Composite (000001.SS) advanced 0.3%.

Bitcoin (BTC-USD) stabilised after being hammered over the weekend. Bitcoin dipped as much as 14.5% to $33,038 (£23,347) while other currencies followed a similar trajectory. Ethereum (ETH-USD), the world's second largest crypto, crashed 23% to trade at $1,901, and dogecoin (DOGE-USD) fell as much as 20% to $0.28 during the session. Losses were largely reversed on Monday.

Kyle Rodda of IG said: “After a brief bounce off last week’s multi-month lows, some of the paper-handed types have seemingly sold-out just passed their breakeven, or decided to pack it in and cut their losses, as Bitcoin’s momentum, and the speculative mania that drove it, almost entirely disappears."

The market was helped by news that hedge fund billionaire Ray Dalio holds some bitcoin. The Bridgewater Associates founder said in an interview with CoinDesk that the dollar is on the "verge of devaluation on a level last seen in 1971," and that he'd "rather have a bitcoin than a bond."

Watch: What are the risks of investing in cryptocurrency?

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