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Market Commentary

Good Morning,

Europe

European markets traded in positive territory yesterday. The German Dax traded higher, closing the session at 9584.12, rising 1.46%. The CAC 40 closed marginally higher, adding 0.83% to close at 4497.68 whilst in Italy, a significantly larger increase was seen on the FTSE MIB which closed the day at 21976.84, adding 2.15%. A relatively high increase was also recorded by the Euro Stoxx 50 which closed at 3208.68; rising by 1.35%.

Deutsche Bank was a significant mover yesterday after posting its quarterly results. The investment bank’s share price rose 2.2%, after reporting higher than expected profits. Net Income was shown as EUR1.08 billion. This figure fell by 34% when compared to the previous year; however analysts were expecting a larger drop. The bank, together with another 15 European banks, such as Credit Suisse Group AG, UBS AG and Barclays PLC, had their outlooks cut to negative by S&P.

Meanwhile it was reported that Barclays Plc is planning to transfer its commodities division into a “bad bank” of unwanted assets and units which are to be overseen by Eric Bommensath. This transformation should form part of the investment bank’s reshaping which is aimed at reducing costs and improving profitability.

From the earnings reports that have been published so far, it appears as though the general positivity has outweighed the negativity effects emanating from the Ukrainian crisis and the sanctions being imposed. However, one still cannot rule out any future negative implications that such a situation may on future stability of worldwide markets.

European markets are expected to open lower this morning on the back of mixed levels in Asian markets; a possible sign of nervousness before the Fed Reserve bank policy later on this afternoon and growing tension between the EU and Russia. The Euro Stoxx 50 is expected to open 0.5% below yesterday’s close.

U.S

The positive close seen in Europe was also reflected in the U.S. yesterday. The main indices in America closed higher. The DJIA was up 0.53%, closing at 16,535.37 while the S&P500 rose 0.48% to reach the 1,878.33 level. The Nasdaq composite also closed in positive territory, climbing 0.72% to 4,103.54. For the first time in five days, investors saw internet stocks rally yesterday. Positive earnings were strong for most of the companies which reported their results. Around 74% of the 279 S&P 500 members that have reported their earnings thus far have seen their profits exceed the analysts’ expectations. The S&P 500 is expected to open 0.3% lower today.

The Fed will be concluding its two-day policy meeting today. The outcome of this meeting is expected to impinge on the bond buying programme exercise undertaken by the Fed itself. It is expected that such a programme will now be cut down to USD45 billion. If this expectation materialises, the bank would continue to show its intent on curtailing the most aggressive policy measure it has undertaken in its 100 year history. Such a reduction will bring the bond buying process to a monthly purchase of USD55 billion from the USD85 billion undertaken in December. It is also expected that the overnight bank lending rate remains within its target range of 0 and 0.25%. Futures markets show that rate hikes are expected towards April 2015 – July 2015.

Meanwhile consumer confidence as measured by the Conference Board’s index was unchanged in April, standing at 82.3. The expectation for this number was 83.2. From the ‘jobs’ aspect, 215,000 were added in April, the most since November. The unemployment rate in the U.S. fell by 0.1 percentage points to 6.7%.

In after hour trading, Twitter stock fell as much as 11% overnight. This reaction comes as a result of Twitter’s slowing user growth rate. The year-on-year growth has decelerated by 5 percentage points to 25% amid the company’s doubling in sales figure to USD250 million which exceeded analysts’ expectations. The company also reported a widening in net loss to USD132 million.

Asia

Asian stock markets were mixed overnight. The Japanese Nikkei 225 closed in positive territory with a 0.20% increase to reach 14,317.43 whilst the Hang Seng was down 1.15%. The Bank of Japan has kept its monetary bas target unchanged at 270 trillion Yen. Analysts expect that the monetary stimulus will be expanded in July.

Have a Good Day,

Karl

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

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