Market commentary: Strong Dollar, interest rate expectations weighing on US Equities

The strongest dollar in nearly 12 years versus the euro and the market expectations of higher U.S. interest rates within the coming months fuelled a selloff in global equities that sent the Standard & Poor’s 500 Index (S&P 500) to a one-month low yesterday.

The S&P 500 slid 1.7 percent, slipping below its average price for the past 50 days and erasing its gains in 2015. The euro weakened another 1.3 percent to $1.07 against the USD, continuing its downward trend. The Federal Reserve is expected to begin to raise rates as the labour market improves, while on the other hand policy makers from Sydney to Tokyo to Frankfurt are cutting rates and buying government bonds to stimulate growth. As a consequence the dollar has rallied this year versus 14 of 16 major counterparts.

The S&P 500 dropped 1.6 percent last week, the most since January, as data showed the jobless rate reached the central bank’s range for what it considers full employment. Policy maker’s next meeting is on March 17-18. The index has entered the seventh year of a bull market, pushing valuations near a five- year high.

Selling in equities was seen in all but three of the 24 developed-nation indexes. The Stoxx Europe 600 Index lost 0.9 percent, led lower by energy producers. The MSCI All-Country World Index sank 1.2 percent to a one-month low.

The lower rates weighed on bank and insurance stocks, sending financial shares in the S&P 500 lower by 1.6 percent. JPMorgan Chase & Co. and Goldman Sachs Group Inc. retreated at least 1.8 percent to pace declines.

Credit Suisse Group AG added 7.8 percent after naming Prudential Plc’s Tidjane Thiam to replace Brady Dougan as chief executive officer. Prudential fell 3.1 percent.

Euro Area Bonds Rally

Yields on 10-year German securities dropped to a record, as the yield difference between 10-year Treasuries and bunds hit the widest since 1989. The benchmark 10-year Treasury yield dropped six basis points 2.14 percent. That follows a five basis-point decline Monday. The 10-year German bund yield dropped eight basis points to 0.24 percent. Malta Government stocks also rose sharply across the board.

Oil Movement

Oil’s five-day slide is the longest run of losses in almost three months. Brent crude is at $56.57 a barrel this morning, posting a modest gains after plunging yesterday. U.S. crude inventories are projected to have increased further from a record high, according to a Bloomberg News survey before an Energy Information Administration report today. Production of U.S. shale oil will expand at the slowest pace in more than four years in April, the EIA said Monday.

Local equities trend higher

Shares in GO and Middle Sea Insurance traded higher yesterday after the companies reported results.  GO Group announced a pre-tax profit of 20.3 million euros for last year, compared to €15.6 million the year before. MSV Life reported a profit before tax of 14.2 million. Other companies on the rise were BOV, trading up to €2.21 and HSBC partially recovered some of recent losses, trading up to €1.96.

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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