Market commentary: Disappointing start to QE in Malta, Euro stable

So, after all the hype to the start of QE in Malta yesterday, rather ironically the prices of the long dated Malta government bonds fell marginally in price. Is this a case of ‘buy the rumour, sell the news’? I don’t think so.

If you look at the price action of the rest of the European sovereigns (apart from Greece), yields fell considerably across the board as prices rose. Focusing on the longer dated sovereign bonds, which has been the main focus of our recommendations, 30 year bond prices rose and as a result the yield curve flattened and is expected to continue to do so in the near term as the ECB ramps up its bond purchases program.

German 30-year yields tightened 9 basis points to 0.89%; as was the case with France to 1.34%. Comparatively lower rated countries like Italy and Spain tightened less, the former by 4 basis points and the latter by 3. This might partially explain the price movement on the local market witnessed yesterday as the spread between the countries increased. Admittedly though, the Maltese market is often has a character of its own and some inexplicable price movements have been witnessed in past.

My stance doesn’t change, remain long euro investment grade bonds; shifting my focus on the upcoming admission to listing of the new 3% MGS 2040 which I expect should start trading around the 104-105 if it were available today. I managed to get in on the action myself (albeit a very small fraction as it turned out) and I look forward to some modest short term returns.

Caution to investors- do not be too eager to crystallise your gains too quickly as the large demand witnessed in the initial offering stage is most likely to follow through to the secondary market, pushing yields below central bank indicative levels, offering excellent returns. Investors should not be overly attached to their bonds though as these are long dated bonds have the potential to do some damage past the QE stage if not monitored closely.

EURUSD

My focus also remains fixed on the price action of the euro against the dollar. I was planning a vacation to the United States next September and am seriously re-considering it with the way things are going! The mid-market rate is currently $1.0765/Euro, down 2.5% in the past three days and fundamentals and technicals indicate the drop is not over yet.

Talk around the town on the markets is a call for parity in the near future. There is a saying in the finance ‘Don’t fight the FED’ (referring to the US federal reserve). In this case it could very well be applied to Draghi’s ECB, so sit down and enjoy the ride while it lasts.

iwatch, really?

On a final note, yesterday we had the announcement of the new Apple iwatch which should hit the stores in April. Having brushed through the details of the watch I must say that although I am an apple fan my first impression is that I cannot imagine myself owning one of these as it would take ‘geek’ to a whole new level (no offence to future buyers).

Although I’m sure there will be many that jump upon Apple’s bandwagon just because they want to be the jetsetters or are religiously devoted apple fans, as at today’s writing I find it very difficult for this product to be as revolutionary as its predecessors. Time will tell.

This article was issued by 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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