< Back to Trader Blog Articles

The resilience of the markets is tested again

  • Risk Manager
  • Blog post submitted on 17th June 2014

Good morning!

Against a backdrop of aggravating geopolitical tensions investors somewhat shied away from stronger risk taking and shunned assets such as equities, peripheral bonds and emerging market stocks and currencies; conversely, the safer assets such as Germany bunds and US treasuries gained with Germany actually placing a 6 months bill at a negative rate of 0.0015%. To start off, Ukraine failed to abide by the deadline set by Russia for paying its gas bills and, in response, the Gazprom halt the gas supply though the flow to the rest of Europe remains in place; the negotiations between the two countries have been prolonging without success because the price demanded by Russia is about USD100 higher than the one agreed prior to this year’s political deadlock. Meanwhile, the situation in Iraq remains worrisome, which prompted President Obama to consider airstrikes against the Islamic militants in the country.

However, the weaker performance of the market is also likely to relate to the upcoming monetary policy meeting of the Federal Reserve, especially after a number of analysts and journalists pointed out that Carney’s (Bank of England’s Governor) cautionary statement revealed last week could soon be valid for the US. That is, after the policymaker stated that the increase interest rates could come sooner than investors expect, some inherently found an analogy in the growth path of the US and UK, with the former deemed to be lagging by several months. The economic data that came out yesterday also supported this view as the industrial production, capacity utilization rate and home builders’ confidence were generally above expectations. On the other hand, the IMF followed World Bank in revising its 2014 growth projection for US from 2.8% to 2%.

Overall, the European stocks retreated yesterday while the US equities balanced the positive data and the event risks and closed only marginally higher. The Asian market also lost some ground after the Foreign Direct Investments (FDIs) in China dropped 6.7% in May (year-on-year) and casino operators dropped after Macau took steps to shorten the stay of Chinese visitors with transit visas. Such data coming out ahead of the Fed meeting does not bode well for the emerging market, which might also be penalized by the news that the U.S. Supreme Court decided that Argentina must pay the bondholders who decided not to accept the 2001 restructuring offer in full when the payments to the remaining investors are made. That is, the country has to choose between not paying any of the bondholders (participators or not in the restructuring offer) or paying all of them; alternatively, it could seek to reach an agreement with the holdouts for a below-par value.

Today, the data coming out of the US will be skewed towards real estate (building permits and housing starts) and is deemed to be important especially since it follows yesterday’s strong reading on builders’ confidence (49 from 45 in May). However, the release of inflation could also impact the market if above or below expectations release will force investors to reassess their outlook on the interest rate path shortly before the Fed meeting. Earlier in the day, the European markets will be looking at the inflation in UK and Economic sentiment in the Eurozone.

Have a nice day!


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

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.