Market commentary: UK election, Russian banks and market movements

The effect the UK election could have on its domestic economy

In a report released by Goldman Sachs analysing the potential effects that the UK election could have on the UK economy, the global investment bank said that domestically focused, smaller companies are most exposed to a Labour win and they see businesses doubting whether a Labour-led government could assist when faced with adverse shocks.

Goldman says move to the Left could mean reduced labour market flexibility, higher taxes and tougher regulation with the main sectors at risk being the banks, service sector, homebuilders and utilities.

The existing Conservative-led coalition has established some market credibility following the stabilization of the economy since 2010. At macro level, implications may be less pronounced than      many anticipate, as the Bank of England is now independent. The coalition is also likely to converge toward centrist positions, while a minority government is less likely to survive without staying mainstream.

The sterling appears most at risk from a “market- unfriendly” election outcome, though FX volatility markets have already priced in a significant degree of election risk.

Russian Banks in need of deposits

Russia’s banks were hit by deposit withdrawals last year and are said to require about $35 billion in funds to bolster stability according to OAO Sberbank Chief Financial Officer Alexander Morozov.

Morozov pertained that most of those funds still remain in safe-deposit boxes and bedside tables and the aim for the whole system now is to get that money back. Sberbank is Russia’s largest lender with 44 percent share of the nation’s consumer deposits, and reportedly saw the value of deposit accounts fall 5 percent in 2014.

The Russian currency’s plunge last year prompted a bout of capital flight, while consumers rushed to buy big-ticket items, such as cars and residential property before their rubles lost more of their value. Banks are seeking to boost deposits to replace expensive funding they receive from the Bank of Russia, while souring loans erode capital.

Stocks fluctuate

U.S. stocks fluctuated as Mylan NV rallied on a takeover offer, while investors assessed mixed corporate earnings from Travelers Cos. to Lam Research Corp. The Standard & Poor’s 500 Index slipped 0.15 percent yesterday after its best rally of the month Monday. The Nasdaq Composite Index topped 5,000 as Lam Research surged 8.2 percent after results beat estimates, while Travelers led the Dow Jones Industrial Average lower, closing 0.47% down.

The Stoxx Europe 600 Index jumped 0.6 percent and is trading marginally higher this morning. The euro erased a loss versus the dollar, and Greece’s 10-year bonds fell for a seventh day. Gold climbed on haven demand as concern grew about a possible Greek default. Both the WTI and Brent Crude traded lower after Saudi Arabia announced that it is ceasing an offensive against Yemen.

Mylan rallied after Teva Pharmaceutical Industries Ltd. made an unsolicited offer to buy it for about $40.1 billion, in the drug industry’s largest takeover attempt this year.

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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