Market Commentary: Interest rates remain low, markets cautiously stable

Evidence is emerging that a lower demand for the EU’s region’s bonds, combined with a potential European Central Bank interest-rate cut in June, are pushing the Euro lower. Upcoming European Parliament elections and rifts over government austerity measures are also contributing to the single currency weakness.

The financial industry across the globe have been calling for a softer Euro for more than a year as the single currency reached levels that are perceived as being detrimental to growth.

Firms from Adidas AG to Deutsche Lufthansa AG have seen revenues cut by an exchange rate that kept up the pace despite a general market consensus that indicated a different path. This scenario added to doubts whether the still fragile peripheral region can withstand a currency that kept pointing upwards.

For the first time in months futures traders have turned bearish on the shared currency. This implies that markets are betting on a weaker currency going forward for the first time in three months. The consensus amongst currency analyst sees the Euro against the dollar at 1.30 by year end. Currently the Euro is traded at 1.3660 against the dollar after it peaked above 1.39 in May.

Meanwhile minutes from the Federal Open Market Committee’s April meeting showed that policy makers expect inflation to remain well below their long-term target of 2 percent. Markets thus remain cautiously comfortable that interest rates will remain at current low levels for the time being.

Also, manufacturing data from China beat estimates. Recently Chinese data has been largely disappointing. Equities are thus expected to react positively during the day.

Confirmation from Russian President Putin that troops will return to their barracks by the end of June may also assist market sentiment in the short-term. Putin has made similar promises before and even an eventual withdrawal would leave the region subject to volatility. The upcoming presidential elections should provide the next focal point for the future of the region and the relationship between Russia and the West.

This article was issued by Calamatta Cuschieri, visit www.cc.com.mt for more information.

The information, view and opinions provided in this article 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. Calamatta Cuschieri & Co. Ltd has not verified and consequently neither warrants the accuracy nor the veracity of any information, views or opinions appearing on this website.