Market Commentary: European markets in positive territory despite sanctions on Russia

Europe

In spite of the news of further sanctions to be imposed on Russia by the European Union, European Market Indices ended the session in positive territory on Tuesday. The benchmark Eurostoxx 50 rose 0.60% to end trading at 3190.54. The German DAX recorded significant increases in percentage terms relative to other indices, adding 0.58% to reach 9653.63. This increase was only surpassed by the Italian FTSE MIB which added 0.7%, ending the day at 21085.12. 

The British FTSE 100 added 0.29% reaching 6807.75, whilst the CAC 40 rose 0.48%, reaching 4365.58. The Spanish IBEX 35 added 0.2% ending its session at 10901.20 as Ferrovial, the Spanish construction company added 1.2% after recording better than expected profits for the first half of 2014. The share value of NEXT also recorded an increase of 2.6% after its annual profits and sales forecast were revised upward.  

US

Trading in the US did not follow that of European indices yesterday, as the S&P500 shed 0.45% closing at 1969.95 whilst the Dow Jones Industrial Average also dropped 0.42% to end its session at 16912.11. The NASDAQ recorded the lowest drop in percentage terms, closing 0.05% lower than its open, ending at 4442.70. This performance was significantly affected by President Obama’s announcement of further sanctions against Russia, adding to the sanctions imposed by the EU. 

Meanwhile, investors may take comfort in the positive data numbers that were announced.  Reports have showed improving US consumer sentiment. This rose to 90.9, the highest level since October 2007. Residential Real-Estate prices have also added on 9.3% in the 12 month period, ending May. Investors are also keenly awaiting the outcome of this week’s FOMC meeting. The outcome of this two-day policy meeting is highly anticipated as rumours of future interest rate hikes heighten. 

On the other hand, the FOMC had repeated last month that it expects interest rates to stay low for a considerable amount of time after the tapering program ends. Currently, the Fed is expected to continue to taper its bond-buying program. Economists expect the FOMC to reduce its monthly asset purchases to $25 billion from $35 billion.  Investors will also be expecting the second-quarter US economic growth figures. 

Argentinean Bonds

Argentina’s bond rallied yesterday over speculation that the government is moving closer to reaching a deal to ward off a default scenario as a meeting with court-appointed mediator Daniel Pollack was extended into the early evening. The market read this extension as a positive step towards reaching an accord.  Argentina’s benchmark bonds due in 2033 rose 0.35 cents to 84.22, erasing earlier losses. 

Twitter

Twitter share price rose more than 30% after trading hours as the company announced that its sales have more than doubled. The company also reported user growth of 24% which beat analysts’ estimates. Users reached 271 million in the second quarter, exceeding the 267 million predicted.

CEO Dick Costolo said Twitter is seeing momentum as it remains “focused on driving increased user growth and engagement, and by developing new product experiences”. Mobile advertising made up 81% of total advertisement revenue for the quarter, whilst international revenue more than doubled. 

Bombardier

The company is expected to shrink its payroll by 1,800 from its aerospace business in an attempt to cut costs.  It also intends to split the aerospace unit into three in order to improve its operations.  The unit will be split into the business aircraft sector, the commercial aircraft and the aerostructures unit.  The leaders of each sector, together with the rail operations division will report to CEO Pierre Beaudoin.  The job cuts follow the elimination of 1700 workers in January, and this will represent 4.8% of the unit’s workforce as at end of 2013. 

Local Market

Today marks the end of the subscription period for the most recent Malta Government Stock issue.  A total of EUR100,000,000 debt is expected to be issued with the possibility of adding EUR 80,000,000 in case of an over-allotment.  Two different bond issues in terms of coupon and term to maturity have been made available to the general public, with the longer term issue appearing to be the most preferred. 

As experienced in recent Malta Government bond issues, many local investors appear to have capitalised their capital gains on previously held government bonds, re-investing their capital in the new bonds coming to the market. 

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.

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