Market commentary: Japan grows marginally, Swiss stocks soar

Japan’s GDP figures came in slightly short of economist’s estimates in the fourth quarter, underlining the difficulty in spurring growth while export gains are undermined by weak investment and consumption at home. Gross domestic product grew at an annualized 2.2 percent.

The softness of the rebound in Japan indicates that the euro area may face similar challenges in its bid to revive its subdued economy. A weaker euro and more accommodative investment conditions sets the scene for growth, however as of yet, there have been limited signs of structural reforms especially in peripheral countries, which is detrimental to a shift in long run potential output.

EU leaders can closely assess future impacts of its policy strategy by observing the affect that Abenomics has had on the Japanese economy. The yen has weakened about 28 percent against the dollar since Abe took power in December 2012 with a pledge to revive the economy with his policies.

While the lower Japanese currency helped boost exporters’ earnings, it also increased import costs and bruised consumer sentiment. The main difference between the Euro Area and Japan though, is that the former relies less on imported raw materials, and over the past year the general price of commodities have fallen significantly.

News from Greece as the country faces crunch time in its standoff with international creditors as euro area finance ministers reconvene in Brussels to try and break an impasse over funding Europe’s most-indebted state. Discussions continued through the weekend as officials sought common ground for a package that would give Greece the time and financial space to negotiate a post-bailout settlement. 

Creditors including Germany, which is the biggest country contributor to Greece’s twin bailouts and the chief proponent of economic reform and budget cuts in return for aid, insist that Tsipras’s government commit to an extension of its current rescue program. The negotiations continue and the outcome remains uncertain.

Swiss stocks have regained more than half their January losses and traders are betting that more is to come.  The Swiss Market Index has rebounded 9.5 percent from a one-year low as calm has returned to the equity market. Volatility has dropped 42 percent from last month’s high, when a decision by the nation’s central bank to drop its currency cap sent the franc soaring.

Investors including BlackRock and Bank J. Safra Sarasin are riding the rebound on optimism companies will be able to navigate a stronger franc. Swatch Group AG increased prices, Julius Baer Group Ltd. cut costs and Credit Suisse Group AG said it had positive trading results. Still, some companies expect the gains in the franc to hurt profit this year, however at this point it seems that market reaction in January may have been overplayed and we are currently seeing a reversal.

Companies releasing earnings results today for the fourth quarter include the following:

Helix Energy Solutions Group, United Stationers, MSA Safety, Sykes Enterprises, Regal-Beloit, Vectren and Cubic.

New Malta government stocks were announced last Friday. The government shall be issuing a 2% coupon maturing in 2020 and a 3% coupon maturing in 2040. The offer price of these bonds shall be established on Thursday 19 February. 

This article was issued by Mr. Simon Psaila Trader/Analyst 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 & Co. Ltd has not verified and consequently neither warrants the accuracy nor the veracity of any information, views or opinions appearing on this website.