< Back to Trader Blog Articles

Mark My Word

  • Investment Manager
  • Blog post submitted on 2nd May 2014
Mvblog

Good Morning,

Earlier on this week, inflation numbers in the eurozone came in at 0.7%, below market expectations of 0.8%, but still on the low side and not high enough to propel the ECB for immediate accommodative policy action. Economists are still of the opinions that inflationary pressures could subside leading to an imminent rate cut and eventually asset purchases. There has been talk in recent weeks from ECB council members on how asset purchases can be done in. The last time eurozone inflationary data came in within the ECB target of 2% was in January 2013, and according to Draghi in the March meeting, a 10% appreciation in the euro has a negative impact of 0.5%, which currency movement could well explain the anchored level of inflation in this region.

Meanwhile, there were no surprises in the Fed’s policy statement on Wednesday as the FOMC announced another $10bn tapering of its QE purchases, as had been widely anticipated. Until further confirmation in the form of incoming data indicating signs of a significant economic recovery following a weather-battered first quarter of 2014, tapering plans will likely continue as scheduled and interest rate policy will remain in tact.

Economic data in the UK surprised to the upside this week as the y-o-y rate of growth was in excess of 3% in its latest Q114 GDP releases, with leading economic indicators showing signs that the robust pace of growth is continuing into Q2.

The Russian-Ukrainian crisis continues to remain topical. Despite recent attempts of easing tensions in Ukraine, nothing seems to be pointing towards a solution to the crisis. From this point onwards, any additional sanctions on a number of Russian individuals and companies is expected to have little direct economic impact, but the country’s economy seems to be on the decline. Recently, S&P reduced Russia’s rating to BBB-, with a negative outlook, meaning that any additional downgrades would result in a sub-investment grade rating, thereby increasing pressure on Russian assets. In response, the Central Bank of Russia to the market by surprise and raised interest rates by 50bp to 7.50%. It is evident, that unless Ukrainian tensions fade away, the Russian currency continues to be exposed to significant risk diminish and subsequently high levels of inflation.

Meanwhile, the International Monetary Fund yesterday warned that additional financing could be required if the situation continues to deteriorate. The IMF, which approved a $17 billion bailout for Ukraine, stated that “a significant recalibration of the program” might be required if the situation worsens.

Despite the present of tensions in Ukraine having the capacity to unnerve financial markets, the contagion effect from the region has been somewhat limited, with equity and credit markets in particular shrugging off the potential risks.

Have a nice day!

Mark

The Calamatta Cuschieri Traders Blog is available daily on CC WebTrader. Other market coverage including coverage of the International Bond Markets is also available.

Important(Notices)
The information provided on this website is being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice. Similarly any views or opinions expressed on this website are not intended and should not be construed as being investment, tax or legal advice or recommendations. Investment advice should always be based on the particular circumstances of the person to whom it is directed, which circumstances have not been taken into consideration by the persons expressing the views or opinions appearing on this website. Calamatta Cuschieri & Co. Ltd. (CC) has not verified and consequently neither warrants the accuracy nor the veracity of any information, views or opinions appearing on this website. You should always take professional investment advice in connection with, or independently research and verify, any information that you find or views or opinions which you read on our website and wish to rely upon, whether for the purpose of making an investment decision or otherwise. CC does not accept liability for losses suffered by persons as a result of information, views or opinions appearing on this website.
This website is owned and operated by Calamatta Cuschieri & Co. Ltd (Co. Reg. No. C13729) of 5th Floor, Valletta Buildings, South Street, Valletta VLT 1103, Malta. CC is licensed to conduct Investment Services in Malta by the Malta Financial Services Authority.