Market commentary: Markets continue to trade lower

Europe

European stock indices continued to trade lower as downward pressure on stocks entered the third day. The Euro Stoxx 50 was down half a percent, ending its trading session at 3007.91. The German DAX was the most resilient index in trading yesterday as it was only marginally lower, shedding just 0.04% to reach 9469.66. 

Significant losses were experienced in the Spanish IBEX 35 which dropped 1.22% to 9871.10.  The French CAC was down by 0.68% to 40883.5 whilst the FTSE 100 suffered similar losses in percentage terms as it was down 0.8%, reaching 6366.51. 

Data misses in terms of Euro-area services and manufacturing have been partly blamed for yesterday’s trading as investor confidence within the Euro area appears to be eroding. The Euro-area services and manufacturing PMI came in lower than expected; signalling slower growth in the final quarter of 2014.

According to Markit Economics, this data suggests that the euro-area economy would have expanded by only 0.1 in Q4. Obviously, the news coming out of Greece continued to add speculation within the market as concerns grow on Greece and its membership in the EU.  Early elections in Greece are expected to be held on the 25th of January. 

What’s more of a worry for investors is that consumer prices in Germany dropped to the lowest levels in more than five years, increasing fears of deflation; a phenomena which no economy would like to endure, especially Germany. As it stands, more stimuli will surely be expected in the next ECB meeting towards the end of January. 

This may take the markets higher, however, one would ask how long and sustainable can this aid be?  Surely the stimulus will just be a temporary fix and other changes to the infrastructure of the Euro economy as a whole must be implemented to improve the situation. 

US

US trading followed in the path of European indices which ended their trading sessions earlier. The most define losses were registered by the NASDAQ which dropped 1.29% to close at 4592.74 whilst the closely followed S&P 500 was down 0.89%, continuing to edge closer to the 2000 level.  It ended its trading at 2002.61. 

The Dow Jones Industrial also traded lower; it shed 0.74% closing at 17371.64.  Small Cap and Energy stocks were also in the red as pressure from oil prices continues to take its toll. The Volatility Index, which is a measure of demand for options on the S&P 500 rose 6% yesterday to reach 21.  This has been the sixth increase for the index in a week. 

Furthermore, the very influential Investment Manager Bill Gross said he expects assets to fall this year as record-low interest rates will fail to restore the sufficient economic growth which is required. Meanwhile, his counterpart David Kostin at Goldman Sachs Group Inc believes that investors should be adding exposure to energy stocks. 

JP Morgan’s shares led the losses within the Dow Jones Industrial as it lost 2.6% yesterday, whilst Trip Advisor was also significantly lower; it shed 3.7%. Within these last two days JP Morgan has slid 5.6%. Michael Kors shares were also significantly lower after Credit Suisse cut its rating on the stock. The bank said that a slowdown in the demand for handbags has led to an increase in discounting.   

Meanwhile, sovereign bonds in Venezuela continue to feel the pressure from oil as they dropped 3.75 to reach 43.50. PDVSA’s bonds maturing in 2017 also were down by 3.51 to reach 53.13. These trading levels have resulted in the bonds being the worst-performers in emerging markets over the last year. 

On the other hand, oil prices are seen to have a positive effect on US Automakers. Automakers such as GM and Ford are expected to extend their positive run experienced towards the end of 2014 into the New Year. Another year of gains is expected. Toyota also said that light-weight vehicle sales may rise to 16.7 million or more in 2015, resulting in a 6 year run of consecutive growth.  

What to look out for today

Data will be flowing out of Germany and the US today.  The month on month figure for German Retail Sales is to be published.  An increase of 0.2% is expected. This should give investors an indication of the strength of the retail sales within Germany.  Another important figure coming out of Germany is the unemployment change figure. CPI figures for Europe are also expected today. 

The US is expected to publish its Non-Farm Payrolls together with the minutes of the FOMC meeting. US Trade Balance figures are also expected today. 

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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