Market commentary: 'Wait and see' ECB stance keeps credit at bay

Following a somewhat expected outcome at the previous week’s OPEC meeting, markets were last week characterised by the persistent talk about the plummeting price of oil, as well as the disappointing speech during the ECB rate setting meeting last Thursday.

On the one hand, following a short-lived rebound and breathing space early on in the week, the price of oil fell below $70 a barrel as OPEC’s decision to leave its production quota unchanged at its last meeting has caused a widespread slashing in the price of oil on the back of abundant supply.

Meanwhile, the lack of action at Thursday’s ECB meeting fell short  of market expectations (albeit nothing concrete and formalised was expected so soon, merely additional guidance and timeframes, which was clearly lacking) especially if you bear in mind the strong words both the president and vice president had in favour of a preferred bias to asset purchases.

It’s clear at this stage that, prior to making the next round of QE a formality, the ECB is kind of buying time, awaiting to see the outcome of the take-up of this week’s TLRO exercise as well as the possible effect the recent decline in the price of oil could have on consumer consumption in the eurozone.

It has become pretty much a wait and see, and, so to speak meddling of words over recent weeks, but it has become increasingly evident that there is no turning back on its word (or speculation rather), as anything short of markets expectations as far as QE is concerned could prove catastrophic in what we could describe the current state of markets to be rather fragile, to say the least.

Meanwhile in the US, the Labour Department last Friday that “The U.S. economy is on track for its strongest year of job creation since 1999, as employers last month ramped up hiring and wage growth posted a small—but potentially significant—pickup. Nonfarm payrolls rose a seasonally adjusted 321,000 in November, the strongest month of hiring since January 2012. Hiring was broad across industries, led by gains in the professional and business-services sector.”

Clear signs that, structurally, the US economy is getting back on its feet. On the monetary policy front, recent Fed comments suggest a persistent build-up towards a mid-year hike, with the focus on the next FOMC meeting being on whether the famous phrase “considerable time” will be dropped from its statement next week, referring to the time required for FOMC members to feel comfortable enough that incoming data, primary job numbers and inflationary numbers (read in tandem amongst many other data points) warrant a rate hike.

On the data front, this week, retail sales this week are expected to show a rise of 0.3% m/m in November, the same increase as during the previous month. Sales on ‘Black Friday’ per fell below expectations but when seen over the 4 day period (Thursday-Monday), sales indicated an increase of 20% over the same period in 2013.

Key events and numbers to watch out for this week are the University of Michigan Confidence and Retail sales (as mentioned earlier above) in the US, Unemployment numbers for the Euro area as a whole, Greece, Sweden, and Australia; GDP for Ireland and Japan, as well as key numbers such as CPI for Germany, Denmark, Greece, Italy, Norway, Spain, Sweden, Ireland, and Mexico.

It is worth pointing out to our readers that Ireland, which until a few years ago was rumoured to be on the brink of a sovereign default, has had its credit rating improved by S&P last week, with the rating agency stating that the “the country’s economic prospects had improved in the past year” and upgraded its average GDP growth projections for 2014-2016 to 3.7% - up 1%.

It said inflows from foreign direct investment had proven to be exceptionally high in recent years, while strong GNP growth suggested a strong recovery in the domestic economy too. S&P placed a stable outlook on the country’s economic prospects.

This article was issued by Mr. Mark Vella, Investment Manager 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. 

More in Business Comment