Market commentary: Markets trade mixed as they await the Fed Meeting

The German economy is benefitting from an improvement in domestic demand, as is the case in other European countries too, and trade within the 19-nation bloc is picking up. This is off setting the slowdown in China, one of the biggest target countries for exports by the EU.

Policy makers have nurtured Europe’s recovery with unprecedented stimulus and plunging oil prices are adding to support as gradually declining unemployment and additional investment demand fuel spending.

The slow revival comes as exporters contend with the impact of weakening growth in emerging markets, which have been a pillar of trade in recent years, and the possibility of the Federal Reserve’s first interest-rate increase since 2006.

Markets feel on edge at the moment with the looming FOMC meeting next week creating an air of unease and a lack of conviction, particularly in equities. Households are supporting growth and will probably continue to do so. The Federal Reserve may raise interest rates as early as next week in a sign of confidence in the recovery, although consensus is that there won’t be any policy shift as of yet.

Finance ministers and central bankers have a chance to discuss the region’s economic outlook in Luxembourg this weekend, when they gather for their informal semi-annual meetings.

While the optimists can take hope from better-than- previously reported growth in the first two quarters of the year, that stands in contrast to a weaker outlook for the currency bloc through 2017 from the European Central Bank. ECB President Mario Draghi cautioned last week that the economic upswing may prove “somewhat weaker” than expected, citing a slowdown in global trade.

German factory orders in July offer a glimpse at what may be in store for Europe’s largest economy and the rest of the region. Demand from within the country and the currency bloc rose, while orders from non-euro countries fell the most since 2009.

This morning markets opened weaker following further declines in Europe yesterday (Stoxx 600 -1.22%, DAX -0.90%) which were followed by modest gains in the US, however having initially opened up on the weaker side. A 0.7% decline off the intraday highs for the S&P 500 into the close highlighted the current volatility and uncertainty, with the S&P 500 eventually closing up +0.53%.

One market which has seemingly come alive in the last few days is the primary market for credit. In Europe yesterday we saw decent sized deals price from Apple and Royal Dutch Shell, triggering the busiest day for corporate bond sales in the region since February.

In the US, a large deal from Biogen helped mark the third straight double-digit day of US$ issuers coming to the market and helping to take the weekly volume past the $50bn mark.

It was interesting to see that with Brazil’s rating downgrade on Wednesday night, a subsequent downgrade to Brazil’s state owned oil producer Petrobras means the corporate has now become the largest HY issuer (based on S&P ratings), with $56bn of bonds, which far overshadows ‘just’ the $31bn for US HY giant Sprint.

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.