Market commentary: The Oil and QE saga

Markets across the board traded higher yesterday as oil continued its slide and analysts continued to analyse this effect in terms of curbed growth. On the back of this, yield on treasuries continued to fall with the 10-year currently trading at the 1.876% level. All eyes are now on the ECB meeting of the 22nd January.

Anything short of a QE will be a disappointment to the market as investors are assuming that QE is a fait accompli.  Markets are currently expecting asset purchases of at least €500 billion to shore up the ECB’s balance sheet to March 2012 levels. Oil hit new lows as both Brent and WTI closed yesterday at their lowest in five years.

Furthermore, after Federal Reserve minutes confirmed last week that it is highly unlikely that interest rate in the US will be hiked before late April, yesterday there was Fed talk in the market after US close.

In his comment to Bloomberg, Fed official William was quoted as saying that by June the decision whether to raise interest rates will still be a close call. Employment data printed last week has been positive but wage and price data remain somewhat subdued.

At the time of going to print, futures are indicating a mixed open in Europe as investors continue to digest economic data and current issues with ECB, Oil, Greece and the Fed continuing to take centre stage. Overnight in Asia, markets traded mixed, on one hand helped by a better than expected China trade report and the continued downward trend in oil on the other.

As the Greece saga continues, concerns about a Greek exit have somewhat been subdued, especially after Germany announced that they would be open to discuss with Greece’s new government in relation to the country’s debt and bailout terms. Syriza continues to maintain their lead in the polls. Syriza’s Alexis Tsiparas said that a new Syriza government will honour the repayment of debt maturing in March and will keep Greece in the Euro.

On the data front, today we await the UK inflation figures. Last reading indicated an increase of 1% year on year. Analysts are expecting a reduction in the figure. On the subject of oil, analysts will await an inventories report that is due tomorrow in the US.

Yesterday also marked the start of the earnings season, as Alcoa profits beat estimates helped by orders from the auto and aerospace industries. Airline Lufthansa reiterated the company’s profit for this year as the company said that the fuel bill for the year should be lower as oil continues to decline. Shares of Lufthansa are trading higher this morning.

This article was issued by Mr. Darin Pace, Treasury 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.

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