Market commentary: Markets struggle in the face of economic slowdown, oil prices

Markets continue to trade mixed as an early rally during yesterday’s session in Europe subsided later in the session, leading investors to believe that we are by no means out of the woods.

On the contrary, a global economic slowdown and oil markets continue to dominate the scene and markets can’t seem to pick up from oversold territories. Brent Oil fell below the $30 threshold, the first time since April 2004. The question now is how low can we go?

European futures are indicating a softer opening this morning, down around 1.5% over several exchanges, taking on from China, who also closed in the red. The Nikkei index retreated by 2.68% overnight as a slowdown in the Oil markets and reports of shooting in Jakarta did not help to improve investor sentiment.

US shares also took a beating during yesterday’s session with the Dow Jones, S&P500 and NASDAQ all in the red. During the previous session the markets managed to retreat some of their losses during the last few hours of trading but we did not see a repeat of this during yesterday’s session.

The S&P index finished below the 1,900 level which translates into a drop of more than 2.5 in percentage terms. It is interesting to note that despite Oil taking most of the blame for the selloff in risky assets, looking at various sectors and their performance during yesterday’s session one will note that Consumer Discretionary and healthcare took the highest beatings at -3.38% and- 2.93% respectively.

In terms of data, the only significant release for today is Germany’s GDP number and the weekly Jobless initial claims in the United States. Today is also the start of the earnings season for banks with JP Morgan reporting later on today with Blackrock, Citigroup and Wells Fargo expected to follow tomorrow. On the European corporate front, Richemont, Burberry and ASOS are expected to report today.

Minutes due today from the last meeting of the ECB may offer cues as to the direction of the region’s monetary policy. The British pound touched its weakest level since February versus the euro before the Bank of England’s first policy decision of the year. Concerns about Britain’s future in the European Union and a weak domestic recovery have weighed on the pound since the start of the year, together with traders further delaying the timing of when the BOE will raise interest rates.

Credit markets are also trading sideways, with spreads widening later in the session yesterday and this morning following a strong start yesterday. It is expected to be a mixed year for credit as investors get to grips with the possibility of rising interest rates counter-acted by varying economic figures. Investment Grade bonds are trading higher while high yield spreads are trading wider this morning, with the ITRX XOVER regaining the 370 level amongst which widening spreads in Isolux, Portugal Telecom and Arcelor Mittal.

This article was issued by Darin Pace, Capital Markets 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 Investment Services Ltd.  has not verified and consequently neither warrants the accuracy nor the veracity of any information, views or opinions appearing on this website.