Market commentary: QE in full swing

Today marks the fourth day of the ECB quantitative easing programme. Shares in Europe are expected to open slightly higher this morning as investors continue to follow the effects of the quantitative easing programme which was announced recently by the ECB, and whose purchases started last Monday.

As a result, European sovereign yields have gone lower and the consensus is that they will continue to go even lower. The question is how low can they go? The ECB allows purchases of only up to -0.2% in terms of yield. Therefore if yields continue to go lower at this rate, and we do hit this buffer than the question would become: what’s next? Will the programme be paused or perhaps extended to other asset classes?

The difference in strategy between the Federal Reserve and ECB is now as evident as it can be. Whilst in Europe the ECB continues with its QE programme, over in the US, the Fed Reserve is debating when to increase rates. Given that strength of the dollar at current levels, a rate hike may hurt the US manufacturing sector and therefore a delay may be warranted. However a rate hike continues to be a question of when and not if.

The Greek saga is not over yet. The nation yesterday started meetings with technical committees of its lenders to renegotiate credit terms. Whilst investors continue to follow the Greek story, markets are becoming more complacent about Greece, and perhaps whilst not everything is not priced in, most of the news may be attributed as noise. There are various reasons for this. For starters Europe is now in a stronger place than 2012 and most peripheral countries are also in a better place.

Yesterday, the International Monetary Fund (IMF) approved a $17.5 billion loan programme to Ukraine. As Ukraine has been involved in conflict with pro-Russia movements the country was threading on the verge of default. Ukraine hopes that the 17.5 billion programme as announced yesterday would be a part of a 40 billion package that would include contributions from the United States and European Union and a prospective $15billion in savings to be negotiated with current bondholders.

In terms of data for the day, we wait to receive the second read on German February CPI and France will also release it CPI figures for the month of February.  Out of the UK, the main data will be the UK trade balance. The January industrial production figures for the Eurozone is also expected today. In the US, we have the weekly initial jobless claims and the February advanced retail sales together with the import price index.

This article was issued by 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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