Market Commentary: Chinese stock weaker overnight, emerging markets rally

This week markets started on a positive note, as somehow alleviating geopolitical risks pushed investors into a risk-on mode with consequently positive changes in equity and bond prices. Indeed, after reports that Russian military planes have ceased exercises in the proximity of the Ukrainian border, the rebound was broad based yesterday and expanded to include even the Russian market.

The latter was as well supported by the MSCI’s decision to keep Sberbank and VTB in its index; as such, the two banks advanced by 5.1% and 4.2% respectively. However, even as the risk taking was on the rise the government bonds remained well supported with such safer assets seeing just measured changes in yields and falling to depart significantly from the multi-months or even record lows touched last week.

It is thus perhaps too soon to tell if the gains we saw yesterday are due to a real change in sentiment particularly as a solution for the Russian-Ukrainian conflict and the situation in Iraq is still pending but is evidence of the prevalent underling interest in high return assets.

Actually, local media reported that Russian authorities might consider banning state purchases of cars from the countries which retaliated against it. Also, the western powers are trying to gain additional support as the European Union reportedly asked the Latin American countries not to export food to Russia (Financial Times).

However, the European leaders yet again appear to face challenges in acting in consensus. Specifically, Bloomberg reported that Finland is growing frustrated because the agricultural sanctions disproportionately affect its economy. Meanwhile, the Russian GDP data published yesterday showed that the growth rate slowed down to 0.8% in QoQ, which was nevertheless marginally better than the 0.7% projected by analysts.

Emerging markets joined the rally but the Chinese stocks were weaker overnight as optimism flattened after the gains seen a day earlier when weak inflation boosted expectations for additional stimulus. The shift could be attributable to the uncertainty regarding the data due in the next 24 hours (industrial production, retail sales, and new loans). 

The European equities appear to have taken queue from the Chinese market as the futures now point to a negative opening. Another drag for the stocks this morning could be the news that a Russian aid convoy has started moving towards Ukraine; the possibility of a humanitarian mission was mentioned over the last few days but the western leaders appear sceptical at the true nature of such transports and the US warned against using them as a mean of sending troops.

On the data front, today we will be looking into the German ZEW Economic Sentiment, which should help better assess the significance of last week’s below expectations German data (factory orders -3.2% MoM, industrial production 0.3% MoM and trade balance EUR16.2 bn). On the other side of the Atlantic, of importance will be the release of the JOLTS Job openings.

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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