Market Commentary: Russia may restrict trans-Siberian flights in response to sanctions

Europe

European shares fell this morning as investors continue to assess the situation in Ukraine. Analysts are concerned that the situation may escalate further. Furthermore, all eyes are now on the ECB as the markets await the comments from President Mario Draghi tomorrow. Europe is lagging behind UK and the US in terms of growth and the ECB has already pledged its help to sustain Europe’s recovery.

BMW

Yesterday, the company announced that earnings before interest and tax (EBIT) rose 26 percent to 2.6 billion euros.

In their statement BMW said that new models and strong sales in China helped the company beat second-quarter profit forecasts thus strengthening its position as the world's biggest luxury carmaker. Sales rose 8.3 percent to 458,000 vehicles, a record high, as new models such as the 4-series coupe and 2-series compact helped the company spark higher demand in Europe and China.

German car sales rebound in July

July car sales in Germany rebounded, leading to the second-highest monthly gain in 2014 and suggesting further expansion in the second-half of the year.

Registrations were up 6.8 percent at 270,249 cars with premium models and sport-utility vehicles by Porsche, Chrysler's Jeep and BMW among the top-selling brands.

France’s third-biggest listed bank, Credit Agricole, shook off bad news relating to Banco Espirito Santo – in which it has a stake and rose 4.9 percent after its own quarterly results. The bank's profit before taxes was higher than they expected.

Spain's Telefonica offered 6.7 billion euros for Vivendi’s Brazil business resulting in Telefonica shares finishing 1.7% higher while Vivendi shares finished higher by nearly 4%.

US

Tuesdays rebound in the stock market was short lived as US stocks resumed a selloff resulting in benchmark indices falling to the lowest levels since May, as energy shares tumbled and concern increased over escalating tensions in Ukraine.

Stocks sold off rapidly, with the Dow dropping 0.84% to 16,429.47, following media reports on comments by Polish officials on the Ukrainian crisis.

The Standard & Poor’s 500 Index slipped 1% to 1,920.18, the lowest level since May 29. The index climbed 0.7% on Tuesday after the biggest weekly loss in two years only to lose the gains in yesterday’s selloff.

Selling accelerated after the S&P 500 slipped below last week’s closing level of 1,925.15. The index lost more than 3.4% since reaching a record high of 1,987.98 on July 24 and is approximately 70 points from erasing its gain for the year.

For every share rising, more than two fell on the New York Stock Exchange, where nearly 703 million shares exchanged hands. Similarly the Nasdaq dropped 31.05 points, or 0.7 percent, to 4,352.84.

Asia

Japan's Nikkei share average fell extending its declines into a fourth day after a survey showed China's services sector growth fell to a record low. The market also looked for more earnings indications from Japanese companies such as Toyota Motor Corp.

The Nikkei dropped 1.0 percent to close at 15,320.31, the lowest closing level since July 24.The Topix fell 1.0 percent to 1,263.53, and the JPX-Nikkei Index 400 dropped 1.0 percent to 11,499.49.

China services purchasing managers' index (PMI) compiled by HSBC/Markit fell to 50.0 in July from a 15-month high of 53.1 in June. This marked the lowest point since November 2005 when the data collection began. With China being a major export market for Japanese manufacturers, news of its economic slowdown led to a drop in the Japanese indices.

In China news emerged that Xiaomi has overtaken Samsung as the biggest smartphone vendor, increasing pressure on the South Korean technology company. Research by Canalys showed that Xiaomi took a 14 percent market share, knocking Samsung off the top spot for the first time since the end of 2011.

The news was made public after Samsung reported a fall in second-quarter profit that was larger than expected, citing slowing smartphone sales growth. In spite of being the world's largest smartphone vendor, increasing competition from low-cost Chinese vendors is taking its toll on Samsung where operating profits for the mobile business, its cash cow, plunged 30 percent on the same period last year.

Russia

Russia may restrict trans-Siberian flights for EU airlines in response to the European Union's sanctions over Ukraine. The Kremlin may retaliate by imposing its own restrictions or bans on European airlines using trans-Siberian routes, thus raising the cost of flights to Asia.

This possibility gained momentum after Russian low-cost airline Dobrolyot, which is run by state-controlled Aeroflot, had to suspend all flights after its plane lease agreement was cancelled because of EU sanctions.

Possible restrictions on transit flights over Russian territory are being discussed by the foreign and transport ministries. Such restrictions would have an affect on European carriers including Lufthansa, British Airways, and Air France who use trans-Siberian routes as part of their ongoing operations.

Further news from Russia reads that President Vladimir Putin ordered the government to prepare a response to U.S. and European sanctions as Poland warned that a renewed buildup of Russian troops on Ukraine’s border raises the possibility of a possible invasion.

Putin is showing no sign of backing down over Ukraine since the U.S. and the European Union tightened sanctions last week. The S&P 500 extended losses in the afternoon after Polish Foreign Minister Radoslaw Sikorski said Russia had raised the alert level of its military arsenal on the Ukraine border.

Malta

The MSE Share Index ended yesterday’s trading session higher at 3,390.925 points. Bank of Valletta and RS2 Software rose while MIA fell.

Bank of Valletta ended yesterday’s session at €2.12 with 5,193 shares being traded while HSBC Bank Malta traded 11,800 shares ending the session at €2.00.  RS2 Software moved up 1.5% to €2.64 with 30,000 shares being traded.

Malta International Airport closed 1.7% lower at €2.30. Go plc ended the session marginally higher at 2.40.  No other price movements were recorded.

The Treasury department announced that the 39 applications received for the 2.0% MGS 2020 will be satisfied in full, whilst for the 4.1% MGS 2034, the first €70,000 nominal on each application will be accepted in full and an additional 40% will be given on any balances.

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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