Market commentary: A bright start for optimistic European equities

With both the equity and the bond markets closed in the United States on Monday due to President’s Day, all the action took place in Asia and Europe. There was a sense of optimism in the air, as European equities enjoyed a second consecutive day of trading in the green. Banks and carmakers led the way with rallies, and the increase in the oil price also helped European shares rise.

The news of the European Central Bank’s asset-purchase programme set the tone for the rise in banking stocks. As investors welcomed plans by the ECB to buy bundles of Italian bad bank loans, markets rebounded positively. Italian bank Monte dei Paschi di Siena was up 9.9%, whereas shares in rivals Banco Popolare and Intese Sanpaolo climbed 8.5% and 4.8%, respectively. The rise in the Italian banking sector led the way for other European banks too, with Dutch group ING rising 5.9% and Credit Suisse climbing 4.2%.

HSBC was another bank to see its shares climb on Monday. The company has just confirmed that it will be keeping its headquarters in the UK following the consideration of a relocation to Hong Kong. London has been home to HSBC since 1993, and the company complimented the UK on its “internationally respected regulatory framework and legal system”. HSBC shares were up 1.36%.

Demand for safe havens, such as gold and the yen declined on Monday. Gold scored its biggest weekly gain since the 2008 financial crises last week, which tempted investors to cash out on their profits. Meanwhile, silver also found itself tumbling, as the precious metal dropped 3% to $15.30 an ounce.

The automobile industry got off to a bright start to the week. Companies such as Volkswagen, Peugeot Citroën as well as Renault all posted gains for the day of as much as 7%.

Other movers included clothing retailer H&M and supermarket chain Aldi. The Swedish clothing company advanced 3.5% on the news that total sales for January rose 7%, and Aldi announced it is looking to recruit 5,000 staff in 2016 since it wants to open 80 new stores across the UK.

Draghi: We will not hesitate to act

Monday was an important day for global markets, with all eyes on European Central Bank president, Mario Draghi, who give a statement of confidence in his address to the European Parliament. While no major, market-moving news was announced, Draghi put investors’ minds at rest saying that “the ECB is ready to do its part”, and ease policy in March – should the recent turmoil threaten to keep inflation low.

The ECB will examine risks emanating from weaker emerging market growth and look at whether plunging crude prices along with market turbulence could derail its efforts to boost inflation. The ECB has missed its inflation target of close to 2% for three straight years and policymakers fear that a failure to get prices rising again would erode public confidence in the bank. This is bad news since it will render monetary policy ineffective, leaving Europe stuck in a trap of zero price growth.

This article was issued by Rebecca Naudi, Trader 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.