Market commentary: Europe, Venezuela and the USD

European Data

This morning we should be rich with data emanating from Europe. France’s economy showed signs of strengthening this month as services unexpectedly grew at the fastest pace in more than three years. 

A Purchasing Managers Index for services rose to 53.4 from 49.4 in January earlier in the week. That exceeded economists’ estimate of 49.9 and is the highest since August 2011. Strong performance in services outweighed a weaker manufacturing measure, with the gauge unexpectedly dropping to 47.7, where a reading below 50 indicates contraction.

French President Francois Hollande is pushing a reform bill through parliament that includes measures to help revive the economy, which barely expanded in the fourth quarter. The European Commission forecasts expansion of 1 percent this year, below the euro-area average.

Risk of deflation becoming entrenched in France remains as an index of prices charged fell to its lowest since October 2009. Today we expect Markit to publish its PMI reports for Germany and the euro area later this morning. The euro-area composite gauge is forecast to increase to 53 from 52.6.

Standard Life

Standard Life Plc reported a 19 percent increase in full-year profit, beating analysts’ estimates, boosted by its asset management unit. The shares rose 3% in early trading today.

Operating profit, excluding sold businesses, rose to 604 million pounds from 2013, the company said in a statement today. That compares with the 559 million-pound average estimate of 19 analysts provided by the insurer. Fee- based revenue grew 14 percent to 1.4 billion pounds, with the final dividend up 7.8 percent to 11.43 pence a share.

Venezuela

The opposition mayor of Caracas was detained by Venezuelan intelligence police as President Nicolas Maduro, struggling to control inflation and a shrinking economy, steps up allegations of plots against his government.

Caracas has seen sporadic street protests this month as opposition-affiliated students try to commemorate last year’s rallies against Maduro, which left 43 people dead. Maduro said in a televised address after the arrest that Ledezma was “captured” on the public prosecutor’s orders for fomenting a coup.

A collapse in oil prices has deepened Venezuela’s economic crisis, pushing shortages of basic products to a record. The country’s economy will contract 7 percent this year, according to UBS AG. Inflation, which reached 69 percent in December, is the fastest in the world.

The country’s benchmark 9 ¼ 2028 sovereign bond increased 16.5% since the beginning of February, and is currently yielding 25% to maturity.

USD

The USD lost some rate support in the aftermath of the release of the 28 January FOMC meeting minutes. Still, the trend is for the currency to continue to trade clearly higher and this should persist as long as markets continue to anticipate Fed hikes beginning in the second half of 2015. Yellen’s testimony before Congress on 24 and 25 February is set to be much more important in guiding market expectations than the minutes. The EUR/USD is currently trading at $1.1335/€.

This article was issued by Mr. Simon Psaila 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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