Market commentary: Good data boosts sentiment

Widespread relief brought about by good economic data helped most global bourses to multi-week highs. Investors welcomed an apparent bottoming in US manufacturing and construction, Australian GDP above expectations and a reserve ratio requirement cut by Chinese authorities as signs of a stabilizing global economy.

The move by the Chinese central bank in particular reassured investors that the leading Asian central bank is ready to intervene should things get awry, even though Moody's downgraded its outlook on Chinese government debt just this morning to "negative" from "stable". The rating agency cited uncertainty over authorities' capacity to implement economic reforms, rising government debt and falling reserves as the main drivers of such an outlook cut.

Improved sentiment was reflected in a pickup in US Treasury yields. The benchmark 10-year note yield surged seven basis points, to 1.80%. Similarly, German bonds prices fell as demand for haven assets waned. Crude oil prices seem to have stabilized in the mid-to-low thirties, while gold gave back some of its recent gains, trading below $1,230.

The US dollar made significant gains against the Japanese yen and the Euro. USD/JPY traded above 114 after a torrid February which saw the pair drop more than 8%. EUR/USD was trading around 1.0880, after peaking above 1.1400 in February. Investors took comfort in improved US data but are also pricing in some action by the ECB in its forthcoming meeting next week.

Fed concerns

Not everyone is happy right now though – New York Fed president William Dudley has expressed concerns about the economy, citing stock and oil price volatility. In a personal statement Dudley said risks to current growth and inflation outlooks “may be starting to tilt slightly to the downside”.

Former Federal Reserve chairman Alan Greenspan also expressed some concern due to stagnant productivity in the US and “many huge unknowns” in the global economic outlook, referring to the US dollar and China’s growth in general. Greenspan however dismissed the use of negative interest rates as a tool for the US central bank, saying they would be “non-productive” and would lead to misallocation of capital.

The reality of persistent low inflation and the prospects of deflation helped the Japanese government to actually get paid to borrow money. For the first time ever, Japan sold 2.2 trillion yen of 10-year debt at an average yield of minus 0.024% on Tuesday. The benchmark 10-year bond yield dropped to minus 0.075% after the auction, matching a record low.

Ads aid autos

Super Bowl ads boosted US car sales in February. Sector analysts noted how website dealership visits were four times higher than any Sunday in 2015. Credit applications also hit a daily record. Ford sales rose by a bumper 20% last month.

Nissan, Fiat Chrysler and Honda saw sales increases of around 12%, whilst Toyota and Hyundai saw smaller increases of 4% and 1% respectively. GM and Volkswagen were unable to benefit – the German carmaker is still dealing with the fallout from its emissions scandal, with US sales dropping 13% in February.

Industry analysts are attributing the increased spending on autos on higher consumer confidence driven mainly by lower fuel prices and the generally improving job and income growth in the US. Consulting firm LMC Automotive expects car sales figure to top those of 2015, although it also pointed out that the growth rate is US demand is slowing down and will plateau soon.

Market movers

Valeant Pharmaceuticals stock plunged as much as 30% to $60, after it disclosed it is under investigation by the US Security and Exchange Commission. The company declined to comment further, but has delayed fourth quarter results to Monday. The drugmaker was already under pressure for substantially increasing prices for its products.

Recent job cuts and division restructuring took their toll on Barclays as the British investment bank recorded the first quarterly loss in 2 years. Top officials commented on the loss as “expected” and “in line with market conditions”. Barclays posted a loss of GBP 146 million in the fourth quarter. Stock reacted negatively, dropping as much as 11% intraday.

Glencore wrapped up its annus horribilis with a net loss of almost $5 billion in 2015. The metal and mining giant saw net income fall by 69%, and is now generating most of its cash from its renowned commodity trading arm, rather than mining and smelting.

Intercontinental Exchange Inc, the owner of the New York Stock Exchange is considering making a rival bid for the London Stock Exchange, igniting prospects of a takeover battle with Deutsche Boerse. The news drove LSE shares to a record high in excess of GBP 29.00, before giving up some gains and trading towards GBP 28.00. This is the latest development in a historically difficult history of stock exchanges mergers and takeovers. Such deals have always been tricky, to say the least, from a regulatory and ‘monopolistic prevention’ point of view.

This article was issued by Andrew Martinelli, Trader 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 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.