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Trader Talk: An Analysis of the Markets

Markets in Europe remain volatile after euro-area economic growth missed estimates and investors watched mixed earnings reports.

The euro-zone gross domestic product expanded by 0.2% in the first quarter of 2014, missing expectations of a 0.4% rise. The German economy drove most of the expansion, improving 0.8% quarter-on-quarter. France and Italy, however, showed weakness, with the French economy unexpectedly stagnating in the three-month period while the Italian GDP contracted 0.1%. Portugal, Finland, the Netherlands and Cyprus further experienced negative growth rates. Eurostat also released the final euro-zone inflation data for April, confirming that consumer prices rose 0.7% last month, as expected. In March, inflation dropped to a four-year low of 0.5%, sparking fears the currency union could slip into deflation.

Almost a year after Draghi pledged to support the euro-area recovery with low interest rates, the central bank is faced with mediocre economic growth and inflation at less than half its goal. That’s increased the odds policy makers will step up their response with radical measures that could range from negative deposit rates to asset purchases.

Ukrainian government forces continued their offensive in the former Soviet republic’s east, killing one rebel and losing a police station before the presidential election scheduled for May 25. Separatists prepared for a vote in the fall after declaring independence, saying they want to join Russia. The insurgents hold buildings as well as radio and television towers in about 15 Ukrainian cities.

In corporate news, Ryanair, Europe’s biggest discount airline, predicted its first profit drop in five years as greater competition drove a decline in air fares. Profit after tax for the year ending March 31 will be 500 million euros to 520 million euros. The company previously predicted net profit of as little as 570 million euros and had cautioned that it might fall short of that number.

Deutsche Bank, Germany’s biggest bank, is preparing to raise about 8 billion euros by selling shares to shore up capital as it gains the Qatari royal family as a shareholder.

Deutsche Bank plans to raise about 6.3 billion euros in a fully underwritten rights offer, and an additional 1.75 billion euros from the sale of a stake to an investment vehicle of Qatar.

AstraZeneca rejected a sweetened 69.4 billion-pound takeover offer from Pfizer Inc. (PFE) as too low, saying the bid fails to reflect the value of the U.K. drugmaker’s pipeline of experimental medicines. The proposal, which Pfizer said was a final offer, would present risks for shareholders and harm science in the U.K., Sweden and the U.S., AstraZeneca.

Good day and happy trading!

Kristian Camenzuli

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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