PBOC expects 7.1% growth in 2015 which may concern investors

Good morning,

• Oil gaps lower but recovers early in the session to trade above Friday's close;

• Japan's coalition retains super majority in pointless election;

• Confidence in Japanese manufacturing sector slips after country falls into recession;

• PBOC expects 7.1% growth in 2015 which may concern investors;

• Start of the week quiet but things will pick up.

The negativity that drove the US to its worst weekly performance in three years appears to be continuing on Monday as Asian market traded deeply in the red overnight and European futures point to a similar open as well.

The poor performance in equity markets has been driven largely by a lack of economic events and negative speculation, particularly relating to the Fed's statement which is due to be released later this week. This can sometimes happen in quieter weeks, especially when the markets have been on a good run. Investors are looking for a reason to lock in a little profit and any news therefore has a negative twist put on it and reports emerge that spook investors.

The best example of this is the speculation that the Fed is believed to be considering removing its commitment to keeping rates low for a considerable period of time after the end of quantitative easing, which came in October, raising the odds of a rate hike in the middle of next year or even sooner. While this report may be true, we should remember that the same report emerged last month and turned out to be false which suggests to me that it may not be totally trustworthy and instead just be a little fear creeping into the markets.

The main thing weighing on sentiment recently and driving certain equities lower is the continued sell-off in oil, with the decline having continued on Friday having broken through the $60 a barrel level in WTI crude and gapped lower this week. This is particularly hurting energy companies but as we saw last week, the consumer is clearly be nefiting which should be viewed as a positive, particularly for countries like the US and the UK where the consumer is so important to the economy.

Markets largely shrugged off Shinzo Abe's election victory over the weekend as the coalition retained its super majority in a vote that effectively changed absolutely nothing. While Abe's Liberal Democratic Party lost a few seats in the vote, its coalition partner gained a few leaving the coalition no worse off than it was before. While Abe may view this as a vote of confidence from voters, the rest of us are left wondering what the point of this exercise was while the markets couldn't care less. No one expected the result to be any different and nothing has changed.

Of more interest to investors was the Tankan manufacturing index for the fourth quarter which was released overnight and showed a slight turn to the downside, falling from 13 to 12, adding to concerns about an economy that in the third quarter fell into recession. While this is a concern, as the last six months has clearly damaged confidence in the economic outlook, the country is still expected to climb out of recession in the fourth quarter and with this is likely to come an improvement in sentiment so it may not be worth getting too concerned yet.

What investors may find more concerning was the report from the Chinese central bank that claimed growth could fall to 7.1% next year. This fact in itself is not going to shock anyone given the country's performance this year, but given that the central bank forecasts this fall may prompt people to revise lower their forecasts as the likelihood is that it is to the upside of what we can actually expect. This year has taught us that the government and central bank are probably a little over-optimistic while being willing to let growth fall more than they were in the past. Therefore, when they release forecasts like this, we should probably price in below 7% growth and that is what I expect many to do in the coming months.

It's going to be a quiet start to the week, with very little data being released. The New York empire state manufacturing index and industrial production figures are the only notable releases today and even these won't shake things up too much. As the week goes on there's plenty of major events though including the Bank of England minutes and latest FOMC decision on Wednesday and the BoJ decision on Friday so I don't expect it to be quite as slow as the week just gone when it comes to news-flow.

The FTSE is expected to open 51 points lower, the CAC 21 points lower and the DAX 40 points lower.