Market commentary: Markets buckle after strong week

News that EU Finance Ministers have agreed in principle to a bridge loan and dovish comments by ECB governor Mario Draghi helped propel equity markets higher on both sides of the pond yesterday, as the positive momentum continues. In Europe the Stoxx 50 closed up +1.5%, an eight consecutive daily gain, rebounding 11.6% off the early July lows.

There were similar gains for the DAX (+1.53%), CAC (+1.47%), IBEX (+1.54%) and FTSE MIB (+1.67%) too.

Over in the US the S&P 500 finished up +0.80% to take it back to within just 0.3% of its all-time high, while the NASDAQ (+1.26%) went one better to close at a record high as earnings out of Netflix and eBay helped cap a good day for equity bulls.

Citigroup, Intel, Philip Morris, Goldman Sachs and UnitedHealth all reported beats, although the latter two did see some weakness in the details which disappointed the market slightly. Google meanwhile reported after the closing bell, with results ahead of consensus and sending the share price 10% higher in aftermarket trading. Of the 52 companies of the S&P 500 to have reported, 73% have beaten earnings expectations.

There were no surprises from Yellen’s testimony in front of the senate yesterday, as the Fed chair reiterated that she favours tightening in a ‘prudent and gradual manner’. Ten-year treasuries and the USD remained relatively unchanged. In terms of the data flow in the US, initial jobless claims declined for the first time in four weeks, falling 15k to 281k (vs. 285k expected), the 19th consecutive week below 300k now.

Bank of England’s Governor Carney said yesterday that the ‘the decision as to when to start such a process of adjustment will likely come into sharper relief around the turn of the year’. Carney also said that ‘interest rate increases would proceed slowly and rise to a level in the medium term that is perhaps about half as high as historic averages’. The Governor did cite risks to the world outlook from Greece and China, saying that ‘we can expect the global economy to proceed at a solid, not spectacular pace’.

This morning, European sovereign credit continued to tighten, with the 10y bunds tightening 2bps to 0.81% and peripheral countries following suit. Malta government bonds also tightened across the board. The longest dated bond (25-year), tightened 4 bps to 2.68%.

Several Swedish stocks, all Stoxx 600 heavyweights, were rising on earnings this morning. LM Ericsson Telefon AB shot up 5% after the Swedish mobile network group said mobile broadband sales in North America stabilised in the second quarter.

Looking at today’s calendar, it’s a particularly quiet session in Europe with no significant data due with the focus likely to be on further Greek developments and the Bundestag vote. The outcome of the German vote is expected to be positive, as the next tranche of financing has been given the nod by Merkel and finance minister Schaeuble.

This article was issued by 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.