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London - European stock markets rode out a rough morning to move higher on Monday, recovering some poise at the start of a week likely to be dominated by a meeting of the US Federal Reserve and Scotland's vote on whether to leave the United Kingdom.
A recovery in mergers and acquisitions has helped drive stock markets to multi-year highs, and sentiment was helped by a report that the world's No. 1 brewer, Anheuser-Busch InBev, was working on a bid for rival SABMiller [JSE:SAB] .
Earlier, the weakest growth in Chinese manufacturing in nearly six years drove Asian markets down 1% and oil to less than $97 dollars a barrel, hammering European oil and gas stocks.
"There's certainly been a flurry of activity around the SABMiller story and that has helped," said one London-based broker. "We'll see. There have been rumours on this front for months."
SABMiller shares jumped 10% in value, leading European blue chips 0.1% higher.
Equities still have fundamental support, chiefly from the billions in funds central banks have pumped into the financial system over the past five years, which banks have chiefly used to buy stocks.
Although the Fed will probably decide when it meets this month to end its own bond purchases in October, more than $4trn of extra money would still be circulating.
Meanwhile, the European Central Bank will accept the first round of requests for loans in a new targetted funding operation on Thursday.
Brent crude oil, however, slumped to a more than two-year low under $97 per barrel as the lacklustre data from China, the world's top energy consumer, cast raised doubts about demand at a time of abundant supply.
European oil and gas stocks - among the most exposed to signs of weakening demand from China - fell as much as 1.3% before recovering..
"Economic growth in China is one of the key drivers of world growth and generally of oil demand," said Ric Spooner, chief market analyst at CMC Markets. "It seems likely that (oil) demand growth won't keep up with the growth in supply capacity."
Sanction this
Another worry is Russia's escalating conflict with the West over Ukraine.
The United States and European Union imposed fresh sanctions on Moscow last week, hampering exploration of Russia's huge Arctic and shale oil reserves and setting rules on tougher financing of existing Russian projects.
Rosneft, one of several large companies affected, saw shares inch up on Monday after the Russian government said it would create a multi-billion- dollar fund to help companies - although the funding announced for it fell far short of the almost $40bn Rosneft says it needs.
The dollar, whose rise since early July is its longest winning streak since 1997, continued to strengthen, and bank analysts said expectations for further gains were likely to weigh on commodities.
At the same time, the boom in shale gas exploration in the United States has removed one of the big sources of tension from the global market.
"A strong dollar has an impact on commodity prices generally, but there is also the issue of shale gas in the US," said Jane Foley, a senior currencies analyst with Rabobank in London.
"Clearly the US can't export shale gas but it means that some of their previous suppliers are looking for new markets. There is a lot of supply out there that would have historically gone into the US but is now going to other global markets."
Jocks away?
Sterling, which has recovered some ground in the past few days, slipped after another round of polls that showed Thursday's vote on Scottish independence remains too close to call.
A vote by the Scots to leave the United Kingdom would have wide-ranging consequences and could drive sterling sharply lower, but the market pricing also encapsulates the risk of a snap back in the event of a vote for the status quo.
One-week implied volatility - the best measure of the scale of the risks to the pound seen by markets - was at its highest in four years.
"While likely to be highly volatile, sterling should hold above last week's lows ahead of, and then rise following, the confirmation of a 'No' outcome from Thursday's Scottish referendum," Credit Agricole analysts said in a note.
