Market commentary: Central bank economics

Political tensions are taking their toll on the markets this morning as Saudi Arabia and its allies launched military operations including air strikes in Yemen.

Oil prices went up on the announcement, and European markets opened lower this morning despite German consumer confidence coming in above expectations.

US markets closed lower on Wednesday with the S&P 500 and the NASDAQ falling 1.46% and 2.37% respectively as a soft reading for durable goods did not help to improve sentiment.

Looking from a year to date perspective, most major asset classes performed strongly on the back of the support from central bank economics. Most of the markets performance across the world can be attributed to the main central banks as the ECB and the FED however remain divergent in their policies.

The ECB on one hand has been aggressively buying sovereign debt whose effect not only pushed yields lower but also pushed equities higher.

On the other hand, the target of the Federal Reserve is to start increasing rates. Now it is really a question of when and not if. In her latest speech Yellen hinted again that the Fed will continue to remain patient and a rate hike will not come as early as June. Many analysts are of the opinion that September is perhaps a more realistic target for the start of its hiking cycle.

Next week is an important week for Greece, as the nation is optimistic it will strike a deal with its European counterparts. The deal is expected to unlock an aid programme that is now desperately needed by Greece. Greek ministers are expected to deliver their plan next Monday.

Even though many analysts are of the opinion that a Greek exit is still an option, consensus seems to indicate that a compromise will be reached and Greece will remain in the Euro. Investors seem to be becoming complacent to the news with many arguing that Europe is now in a better place and risk of contagion is much lower than when it was during the 2012 saga.

In terms of data for the day, the most important figures out of Europe come from France and Germany as the French publish their fourth quarter GDP figures. This morning Germany released its consumer confidence data which continued its upward trajectory. Out of the US, we await to receive the weekly Initial Jobless Claims and the US composite PMI as published by Markit.

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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