Market commentary: Rebound expected as Europe Stock-Index futures rise

European stock-index futures advanced, indicating that equities may rebound from yesterday’s slide. U.S. index futures were little changed, while Asian shares fell as oil prices slumped on Wednesday as uncertainty in Greece caused a flight to safety.

Futures on the Euro Stoxx 50 Index expiring this month gained 0.5 percent to 3,185 at 7a.m. in London. Standard & Poor’s 500 Index futures added less than 0.1 percent, while the MSCI Asia Pacific Index slid 1.1 percent as oil volatility erased yesterday’s gain.

European stocks fell for a second day yesterday, with Greece’s benchmark index falling the most since 1987 as the prospect of an election fueled speculation that opponents of the European Union’s bailout terms may gain more power.

Britain's FTSE 100 was expected to open 18 to 26 points higher, or as much as 0.3 percent; Germany's DAX was seen opening 69 to 78 points higher, or 0.8 percent; and France's CAC 40 was called opening 26 to 31 points higher, or 0.7 percent.

In China, data today showed producer prices slipped 2.7 percent in November from a year earlier, a 33rd straight decrease, while consumer inflation slowed to 1.4 percent, the slowest since 2009. A move to tighten short-term lending rules in China sparked a rout in global equities yesterday.

TUI AG may move in Europe today. The German tour operator merging with TUI Travel Plc reported full-year earnings that beat analysts’ expectations and forecast further growth for fiscal 2015.

Royal Bank of Scotland Group Plc may pull out of fixed-income trading in Japan and reduce staff numbers by more than 200 to about 30, with most of the jobs going by February.

EON SE may be active. Eneva SA, the Brazilian utility which the German company jointly controls, filed for bankruptcy protection.

The mining company Anglo American Plc, which is reviewing operations from Australia to Chile to boost profit, may write down the value of its iron ore and coking coal assets including its flagship Minas Rio project.

Russia

Russia’s central bank is expected to raise borrowing costs to avert threats to financial stability as oil prices near five year low and sanctions over Ukraine risk the collapse of the ruble.

The Bank of Russia is expected to increase its key rate to 10 percent from 9.5 percent. The regulator will announce the decision at about 1:30 p.m. tomorrow in Moscow, followed by a news conference.

The ruble’s 39 percent slide this year has left policy makers with dwindling options after they shifted to a free-floating exchange rate ahead of schedule last month and spent almost $80 billion on defending the currency. The central bank, has raised rates by 400 basis points since President Vladimir Putin’s incursion into Crimea in March, which led the U.S. and the European Union to impose sanctions.

Investor expectations for rate increases in the next three months have more than doubled since the central bank last reviewed borrowing costs in October. The three-month MosPrime rate, which large Moscow banks say they charge one another, may rise 430 basis points, or 4.30 percentage points, in the next three months.

The ruble is the world’s worst performer this year after Ukraine’s hryvnia, weakening more than 23 percent against the dollar since the central bank increased the key rate by 150 basis points at its last meeting. The currency lost 0.8 percent against the dollar yesterday.

The central bank is resorting to higher rates to slow inflation to its medium-term target of 4 percent even as the economy lurches toward a recession. Consumer-price growth last month accelerated to 9.1 percent from a year earlier, the fastest since June 2011.

The ruble’s decline will contribute 2.4 percentage points to price growth this year and 3.2 percentage points in 2015, the Economy Ministry estimates. Gross domestic product may shrink 0.8 percent in 2015.

Putin pledged to punish those attacking the ruble with “harsh” steps in a Dec. 4 address to parliament and top officials in Moscow, asking the government and the central bank to work together to stabilize the currency.

Greece

The benchmark Athens Stock Exchange Index (ASE Index) plunged the most since 1987 yesterday after Prime Minister Antonis Samaras opened the door for the rise of an anti-austerity party in Greek politics.

With Greece’s benchmark stock index nine times more volatile than the Stoxx Europe 600 Index, investors are bracing for more declines. The risk now is that Samaras may have to call a parliamentary election that Syriza, a party that doesn’t favor austerity, might win, reintroducing the turmoil that threatened the European currency union in 2012

After Greece completed the biggest sovereign-debt restructuring in history in 2012, the Mediterranean nation cleaned up its public finances just as the European Central Bank stepped up its support for the region’s recovery.

That helped the ASE Index almost triple through March. The Greek economy grew in the second quarter for the first time in more than four years, and the country returned to debt markets in April for the first time since 2010.

This article was issued by Kurt Agius, 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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