Market commentary: ECB and Greece bring uncertainty to already volatile market

The weekend was mainly dominated by the EURO dropping about 1.2% to a 9 years low, touching 1.1864 against the Dollar, a level not seen since 2006. This was mostly the result of stronger remarks from ECB President Mario Draghi who late last week reinforced the Central Bank’s intention to address the ever closing possibility of deflation.

With the unemployment remaining rather elevated, Italy in recession, France struggling to maintain its positive momentum and Germany experiencing a weak patch, the markets are anticipating that a full QE program is no longer deferrable by the ECB and the EU economies that are now relaying heavily on monetary stimulus to avoid deteriorating further their GDPs and public finances.

Draghi made ever more clear that a large consensus around direct ECB Sovereign Bond purchases has been built and it is now only matter of “when and how” rather than “if”.

The escalating political situation in Greece also added uncertainty to an already volatile environment with the major political powers in Europe starting to make contingency plans ahead of a potential electorate win by the Greek anti-austerity opposition, which would most likely derail the country efforts to improve and reform its economy.

With Angela Merkel accepting that Greece could very well exit the Eurozone should the Greek opposition win, growing uncertainty is weighting on European Market which opened lower this morning. This situation also contribute to the slid in the Euro currency, with investors shifting funds to safe heaven currencies such the Japanese Yen and the Swiss Franc.

Last week the US Markets pared initial gains at the opening, swinging in negative territory throughout intraday trading, although all the major indexes managed to recover closing substantially flat at Friday’s closing. However, US markets still ended the week lower after a positive end of the year rally, and with the end of the Christmas holiday, today we will see whether the uncertainty reigning in Europe will spill over American equity markets.

Berkshire Hathaway Inc., the financial company led by Warner Buffett, is on the spot light after Buffett stated that he is shifting its focus from stocks to mergers. The Company is trading near all-time highs with a record cash position of $62.4 billion, and although a few unfortunate investments, in 2014 it managed to climb more than twice the S&P 500.

Buffett’s intention to refocus the Company’s financial resources to new acquisitions is a hint that he would like to continue to make Berkshire Hathaway Inc. a diversified conglomerate and not just a stock portfolio.

The outperforming results of last year also helped the company to mitigate investors’ worries concerning the transaction process throughout which Buffett has started to delegate some key decisions and organizational power to new younger prodigies that are seen as the candidates to replace him at the helm of Company.

By largely outperforming the markets, the new team has surely demonstrated to have all the potential to continue adding value for Berkshire shareholders and investors and that, once again, Warner Buffett seems to have make the right decision: not only in choosing profitable investments, but also outstanding managers to whom leave the future of Berkshire Hathaway Inc.

Asian Markets also witnessed a mixed section with the Nikkie 225 closing down 0.24%, the Hang Seng Index also closing lower 0.34%, while the Shanghai market rallied 3.58% and ASX 200 (Australia) posted a modest +0.26%.

Crude Oil continues its negative trend, opening today week almost 2% lower from Friday’s closing, indicating that the commodity is far from having stabilized and will probably continue to put pressure on oil driven economies and emerging markets as it was seen throughout the end of 2014.

With the Euro and the price of oil at multi-years lows, the political crisis in Greece and the markets closely watching ECB and FED’s policy decisions, uncertainty has become the main game in town, and investors can expect volatility to play a big role in the days ahead.

This article was issued by Mr Paolo Zonno, Trader/Analyst 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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