Market commentary: Rebound in equities?

Safe to say, the summer period has been rather unpleasant for the committed investor. For those that stick to the mantra “sell in May and go away”, that tactic surely paid off, with the S&P 500 losing 7.56 percent since the beginning of May and across the pond the Euro STOXX 600 having lost 10.00 percent.

This morning we have seen a slight re-bound on the opening, driven by Asian equities as a holiday in China gave investors respite from the market that’s been at the centre of recent global volatility. The off day in China gives investors the opportunity to focus on domestic data and valuations, which makes for more rational thought than being tossed around by Chinese intervention skewing the markets.

The Euro Stoxx 600 is up 1.5 percent this morning, as is also the DAX (1.85%), the CAC 40 (1.59%) and the FTSE MIB (1.5%). This is ahead of the European Central Bank policy meeting today, where we expect some calming and re-assuring comments over the recent volatility in financial markets which could result in a more positive close later in the day.

The Governing Council and Draghi could explicitly mention that there is an increased likelihood that the ECB will have to do more to achieve a sustainable inflation path towards 2%. This could eventually include extending the duration or increasing the monthly target of asset purchases.

In European stocks news Syngenta AG jumped over 3 percent after saying it plans to buy back more than $2 billion of shares and sell its vegetable seeds business to appease shareholders after fending off Monsanto’s $47 billion takeover  attempt. Also Air France rose over 4 percent after reports it is considering creating a low-cost long haul unit.

On the fixed income side, investment grade cash bond yields are marginally higher this morning, including European sovereigns, where the German 10 year bund is trading 1.6 bpts higher to reach 0.795% and Italy and Spain 1.6 and 3.5 bps to reach 2% and 2.16% respectively. In high yield, the current sentiment is inverse, with the ITRX XOVER 3 bps tighter to reach 337 as well as most cash bonds trading a tighter, with the Utilities sector leading the way.

In the commodities space, Oil’s rebound faltered amid signs the global glut will worsen as President Obama secured congressional support for the Iranian nuclear deal and U.S. crude supplies rose the most since April. West Texas Intermediate crude futures dropped 0.5 percent to $46.03 a barrel in New York, and Brent slipped 0.3 percent to $50.31 in London.

Turning over to today’s calendar now. It’s set to be a busier session this morning for data in Europe with the final August services and composite PMI readings for the Euro area, Germany, UK and France as well as employment data in the latter. Euro area retail sales data is also expected before the ECB meeting at lunchtime.

Elsewhere and over in the US this afternoon we’ve got more employment data in initial jobless claims and Challenger job cuts although the highlight may well be the ISM non-manufacturing reading and employment component in particular. The final services and composite PMI prints will also be due along with the July trade balance.

This article was issued by Simon Psaila, Treasury Officer at Calamatta Cuschieri. For more information visit, www.cc.com.mt .The information, views and opinions provided in this article are 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.