Market Commentary | Central Bank caution

Volatility and uncertainty took a step back on Wednesday as the markets clawed back some of the week’s losses, even though sovereign bond yields fell for the most part. The Stoxx Europe 600 recovered from its February low and emerging markets also rose. Longer-term economic worries by the Federal Reserve in its latest meeting meant US stocks were unable to emulate their Asian and European counterparts, and finished the day lower. Thursday has not been kind so far, with the Nikkei ranking as the worst performer amongst major bourses with losses exceeding 3%.

Brexit (yep, again) is not only a worry for the majority of investors, but is also at the forefront of major global central banks. Both the US Federal Reserve and the Bank of Japan kept interest rate and the general stance of monetary policy unchanged, citing fears that a Brexit would cause considerable turmoil in the financial markets. US sovereign yields resumed their marc lower, with the 10-year Treasury now just above 1.55%, having almost matched a 4 year low on an intraday basis.

The Fed decided to keep the key overnight lending rate in the 0.25% to 0.50% range. The Federal Open Market Committee noted that while employment growth has slowed since April economic growth has picked up and household spending strengthened. Inflation has remained below Fed's 2% target, reflecting lower energy prices and prices of non-energy imports, but the analysis seems to indicate that the target is slowly but surely coming into view. The FOMC said it expected economic activity will expand with "gradual adjustments in the stance of monetary policy”, suggesting that an increase in interest rates in the coming months is not ruled out if the global economy can avoid Brexit-led turbulence.

Iran buys American

Details are still scarce – but Iran said it had reached an agreement with Boeing for the supply of over 100 planes. This is the first time in decades that Iran will be buying US aircraft, after the easing of international sanctions against the Middle Eastern country. Airbus have also won a provisional deal for 118 planes earlier this year. Iran needs an estimated 400 jets to renew its fleet and prepare for projected growth, according to Iranian and Western estimates. Hurdles to the successful conclusion of the deal though remain high. Both Airbus and Boeing would need US export licences to conclude the deals, due to the use of significant US technology in their aircraft. Even then, industry sources caution that both deals could take some time to implement because of uncertainty over financing, with the US financial system still closed to Iran.

This article was issued by Andrew Martinelli, Trader at Calamatta Cuschieri. For more information visit, www.cc.com.mt . The information, views and opinions provided in this article are 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. Calamatta Cuschieri Investment Services Ltd has not verified and consequently neither warrants the accuracy nor the veracity of any information, views or opinions appearing on this website.