Market Commentary | European shares sink, but precious metals shine

Financials, housing shares and retailers across Europe traded in the red on Monday, leading investors to flee towards safe-haven assets, which in turn caused a demand for precious metals

The post-Brexit recovery across European markets stalled on Monday, as financials, housing shares and retailers traded in the red. This led investors to flee towards safe-haven assets, causing demand for precious metals to reap the benefits and help the price of silver surge to a near two year high. In Asia, traders acted upon hopes that the bank of Japan will further loosen its monetary policy, causing the major index’s to rise and trade in positive territory. Meanwhile, Wall Street didn’t witness much action on Monday as trading was subdued, with U.S markets closed for the Independence Day holiday.  

Italian banks opened the week on the wrong foot. Banca Monte dei Paschi di Siena shares were slammed to an all-time low on Monday, highlighting the suffering among Italian bank stocks this year, as the sector grapples with bad loans on its books and ultra-low interest rates. This move was infact the result of a report showing that the European Central Bank is pushing the lender to draft a new plan aimed at reducing its non-performing loans. Other Italian banks were also lower. Banca Popolare dell’Emilia Romagna lost 6.15% and Intesa Sanpaolo was down 3.1%.

It was also a rough day in the automobile industry. Shares in Volkswagen were 2.2% lower, after the German car maker rejected demands to pay compensation to European car owners who bought tainted diesel vehicles. Other automobile manufacturers also took a hit, with BMW losing 1.58% and Renault down almost 4%.

Marks and Spencer was having a bad day following a ratings downgrade from hold to buy. This led shares to tank as much as 5% during Monday’s session. Other retailers were also falling. Shares in Next and Burberry traded 2.77% and 1.54% lower respectively.

London Stock Exchange Group Plc shareholders put pen to paper on Monday, and approved a $30 billion planned tie-up with Deutsche Borse. This was a big step towards the deal’s completion, which had recently been facing uncertainty following the Brexit decision. However, both exchanges issued a joint statement to express their commitment to the agreed terms and continue working to seal the deal.

Mining shares occupied the top spots on the FTSE 100, as metal prices rose. Gold was up more than 1% and silver gained close to 5%. Shares in precious metals producers Fresnillio and Randgold were reaping the benefits of this, as shares soared over 5%.

Gold and other raw materials would benefit if the UK’s 23 June vote to leave the EU triggered further stimulus from the European Central Bank and Bank of Japan, as well as killing off speculation that the Federal Reserve will raise interest rates this year. Global equities last week rallied by the most in four months as policy makers worldwide sought to reassure investors they would take steps to limit the economic fallout of so-called Brexit and ensure financial markets kept functioning. The securities tumbled by the most since 2008 on the day after Britain’s referendum.

An element of caution is likely to linger throughout the week, with the Bank of England scheduled to publish its quarterly financial stability report of Tuesday. On Wednesday, the Federal Open Market Committee minutes from its June meeting are due, followed by the closely watched nonfarm payrolls report on Friday.

This article was issued by Rebecca Naudi, 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.