Market commentary: World markets trade higher, auto manufacturers boost sales

Europe

The majority of European indices ended trading in positive territory albeit marginally. The Euro Stoxx50 added 0.17% to reach 3238.35 whilst the CAC 40 rose by 0.25% to 4388.3.  The UK FTSE 100 was the biggest winner as it added 1.29% reaching 6742.10. The IBEX 35 was the second largest gainer as it added 0.72% to end its session at 10749.2.

The German DAX was the only index that closed in the red, shedding 0.3% to end at 9934.08.  One could say that, on the whole, market movement was relatively quiet when compared to other sessions, possibly because investors are waiting for the ECB’s meeting tomorrow.  

It is interesting to note that the Stoxx Europe 600 Index has rallied 12% since its October low justifying the fact that equities have been a good bet since oil prices plummeted.  That said however, shares of BP Plc rose by 4.7% whilst Royal Dutch Shell’s stock increased by 4.1%. What’s more, given OPEC’s decision not to lower its oil supply ceiling, further increases in equity valuations especially in Europe may be expected. 

Following its recent gains, Deutsche Lufthansa’s share priced was trimmed slightly as the pilot strike which began on Monday was expected to affect all of Lufthansa routes by last night.

US

The three major US indices ended yesterday’s session in positive territory with the S&P500 climbing 0.64% to reach 2066.55 whilst the Dow Jones Industrial Average rose 0.58% to 17879.55 and the Nasdaq added 0.6% to reach 4755.81.  Biotech and energy companies were amongst the top gainers yesterday whilst data on spending within the construction industry helped boost confidence. 

Construction spending rose by 1.1%, beating expectations of 0.7% whilst continuing to show that the economy is on the right track. In addition to this, September’s spending decline was revised to 0.1% from the initial reporting of a 0.4% drop.   It is interesting to point out that the energy sector rose by 1.3% even though oil continued to trade lower.

Some believe that the drop in oil prices will be a major boost for companies as it should improve companies’ earnings due to lower operating costs.  This has been the case with airline stocks for example; however others may be wary of this drop and believe that it may create havoc in the debt market especially through High Yield ETFs with significant exposure to oil.  Investors may be encouraged to take a closer look and examine their exposure to oil through the ETFs they hold. 

Meanwhile, auto manufacturers like General Motors Co., Toyota Motor Corp., Honda Motor Co., and Fiat Chrysler have all experienced a jump in their reported revenues, also beating analyst’s expectations.  GM reported a positive 6.5% year-on-year increase in sales, adding that the previous month was the best in 11 years.  Fiat Chrysler sales received a 20% boost, recording its 56th straight monthly increase.      

PTL Holdings p.l.c

Earlier this week, PTL Holdings p.l.c announced its allocation policy for the applications it received for its newly issued 5.1% obligations due 2024.  In terms of the subscriptions related to the pre-placement, the issuer will be allotting 38.3371% to subscribers.  The issuer will then be allotting a minimum of EUR1000 to each applicant in the general public offer with an additional 15.282% on the remaining balance rounded up to the nearest 100.

Yet again, a large over-subscription was witnessed for the local corporate issues; a clear sign of trust that the Maltese investors have in local companies as well as an invitation for other local corporate to tap the local debt market for additional sources of finance, improving the capital allocation within the Maltese economy. 

What to look out for today

Services PMI figures from the UK, Spain and Italy are expected to be published by Markit.  Investors must keep in mind that a reading above 50 would indicate expansion within the industry whilst a reading below 50 would imply a contraction.

In the US, the non-farm employment figures are expected.  This figure estimates the change in the number of employed people during the month of November, excluding the farming industry and government employees.  The Beige Book is also expected to be published this afternoon. 

What to look out for tomorrow

ECB Press Conference

Investors will be keeping a close eye on tomorrow’s ECB meeting as speculation as to whether or not the ECB will resort to quantitative easing grows.  Over the past few months we have seen a significant increase in most European government Bonds due to the negative deposit rates imposed by the ECB.  The purchase of asset-backed securities and covered bonds by the ECB together with the provision of longer-term loans to banks also stimulated the aforementioned capital appreciation.

With further stimulus added to the European economy, an extension to the recent gains experienced over the past few weeks is very plausible.  On the other hand, traders have played down this possibility as the world’s focus is currently on oil prices and how this will be affecting business operations in the near future.   Bloomberg’s World Bond Indexes show that German Bonds earned 8.8% Year-to-date. 

From the US, investors will be waiting to see the publication of US unemployment figures by the Department of Labor.  296,000 is the figure expected by analysts.  A lower reading should be welcomed by the market, however one would need to delve into the reason why the reading is actually lower.  Is it because more individuals have managed to find employment, or have they given up looking for a job?  

This article was issued by Mr. Karl Cremona, Investment Advisor at Calamatta Cuschieri. For more information visit  www.cc.com.mt .

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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