Market Commentary: Markets rally after Poroshenko announces agreement with Russia

Today is the day investors have been waiting for. Today is the day the ECB President Mario Draghi will announce what policy measure he will use (if any) to stimulate the economy.

ECB chief Mario Draghi gave confidence to investors at the Jackson Hole Aug. 22 that policy makers meeting that the ECB will use “all the available instruments needed to ensure price stability.”  

Gauges of euro-region manufacturing and services industries unexpectedly fell this week, stressing concerns over the Eurozone. The ECB cut key rates in June, pushing the deposit rate below zero, and initiated a lending program for banks in a bid to stoke price growth.

Yesterday was a particular day for the markets. We saw the markets rally strong in the morning after the Ukrainian President Petro Poroshenko said that he’d hammered out an agreement with Vladimir Putin, Russia’s president.

He later removed the word “permanent” from his cease-fire statement and Putin’s spokesman said there had been no deal. Although the markets lost some stream after having realised no cease fire agreement was reached, the markets in Europe still closed in positive territory.

German factory orders surged the most in more than one year in July after weak demand in the second quarter contributed to an economic contraction. On the other hand, German business confidence has waned as sanctions against Russia, the country’s retaliations and tensions in the Middle East begin to affect the economy, which contracted 0.2% in April-June period.

At the same time, unemployment at a record low is bolstering consumption as the European Central Bank implements historic stimulus measures to rekindle growth.  Ahead of today’s ECB meeting, German new order data should give some relief that not everything is gloom and down.

Investors are putting the Russia-Ukraine situation on the back burner and see opportunities in the market. For all the concern about the prospect of tougher international sanctions and signs of slowing growth, more money flowed last month into Russia and China exchange-traded funds than any other emerging markets.

The Bank of Japan maintained record stimulus to keep stoking inflation and boost economic momentum that’s been sapped by a higher sales tax. The central bank kept its pledge to increase the monetary base at an annual pace of 60 trillion yen to 70 trillion yen in line with market expectations.

Governor Haruhiko Kuroda’s bid to spur faster price gains is facing stiffer headwinds after the levy hike triggered the steepest contraction since the March 2011 earthquake. Housing investment has continued to fall following the April increase while production has shown some weakness.

In corporate news Apple shares fell yesterday. Apple is set to unveil new iPhones, a wearable device and a mobile-payments system at an event Sept. 9. Analysts at Pacific Crest Securities LLC said they would probably cut their outperform rating on Apple stock unless the event shows “massive incremental profit opportunities.

ThyssenKrupp AG tripled earnings in the second quarter and is expanding its elevator, industrial and components units amid weak steel prices.

At the same time, Germany’s VCI chemical trade group cut its 2014 sales and production forecasts citing geopolitical tensions.

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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