Market Commentary | Euro Banks Take a Tumble

Tuesday was not kind to the financial markets, with most equities worldwide finishing the day lower hit by renewed worries about global growth, falling oil prices and troubled European banks. The worries seem to have carried on into the morning’s session in Asia and Europe, courtesy of a weakening services sector PMI in China and the first decrease in employment in four months. Crude oil prices also remained weak, below the psychological $40 level. A weakened dollar did help towards limiting falls in ‘black gold’, but analysts warned prices would be under pressure from rising supply.

Shares in Europe fell to a three-week low amid poor corporate results. Commerzbank took the wooden spoon for the day, falling as much as 9% after it warned earnings would fall this year. The warning comes just one day after the latest round of European bank stress tests, where Commerzbank was ranked as one the 12 weakest banks amongst the 51 tested, despite not ‘failing’ the test outright. The German lender fell after it said profits would suffer because of decreased appetite for borrowing by businesses and a fall in revenue due to negative interest rates.

Other banks also fell significantly. Credit Suisse fell 6.2% and Deutsche Bank fell to a record low as did Italy’s Monte dei Paschi, which fell 16%. The Swiss and German lenders will drop out of the Euro Stoxx 50 index next week – the banking index in the worst-performing so far this year in Europe, down by more than 30%. Analysts are forecasting a significant drop in earnings across the board this year, a drop second only to mining and energy companies. Societe Generale, ING and UniCredit will report results today, and RBS will report on Friday. HSBC announced a $2.5 billion share buyback this morning amid results which showed pretax earnings fell by almost half from a year earlier.

Some companies bucked the negative trend on positive corporate updates. Eurofins Scientific, Direct Line and BBA Aviation all registered double digit gains, and Campari finished at an all-time high. Cheers to that.

Across the Atlantic, things were also not-so-cheerful. US stocks dropped the most in four weeks, and the S&P fell for the second consecutive day for the first time since the Brexit vote. The Dow Jones index closed lower for the seventh day in a row, the worst streak so far this year. US economic data is painting a mixed picture for the economy’s outlook. The lack of certainty over future growth has caused investors to pull out of stocks at the moment, with gold one of the main beneficiaries. The precious metal is approaching its July and 2016 high of $1,384 per ounce.

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.