Market commentary: Markets start the week little changed

January has been a painful month for equity investors in Europe, with the Euro Stoxx 50 is now around 10% lower year-to-date. The British  FTSE 100 has been the relative outperformer compared to its’ European counterparts, down “only” around 7%, while the more china exposed DAX and high beta FTSE MIB trail the remaining European indices, down 11-11.5% for the year.

This poor January performance has essentially wiped out all of the performance gained in 2015, and with

Asian stocks extending their losses this morning, after their second weekly decline a turnaround doesn’t seem to be any closer as Asian stocks trade deeper into bear territory. A gentle reminder to our readers this morning that there will be no trading in the US this afternoon due to the holiday in the U.S. which marks the birthday of Martin Luther King, Jr.

Crude oil continued its decline to a fresh 12-year low, with WTI crude now trading at USD 29.07 per barrel in part due to the news over the weekend that the US has lifted its sanctions on Iran. This should see a higher flow of supply into the oil market, thus having a dampening effect on the price on oil.

Leading officials from the government of Iran said the country is aiming to raise shipments by 500,000 barrels a day amid the removal of sanctions. The energy slump is fueling concern over disinflation, just as the U.S. embarks on tighter monetary policy and as anxiety over China’s management of its slowing economy continues, the short term outlook for a rebound in prices is bleak. Nomura Holdings Inc. predicted a potential drop to $25 in its latest report on the industry.

Moving on to credit, European sovereign bonds are trading marginally wider, with the German 10-year trading at 0.54% and the Italian and Spanish debt trading at 1.57% and 1.75% or 1bp wider. Malta government bonds are also relatively unchanged, with the theoretical 10- year yield at 1.49%.

European corporate Investment grade bonds are also relatively flat, with the ITraxx Europe 0.48 bps wider to 96.79, led by Industrials and Consumer Staples trailing, namely on the back of negative news emanating from Casino Guichard Perrachon SA.

In high yield, the negative move is slightly stronger with the iTraxx Crossover 2.4bp wider to 387.32, with the technology sector leading and Consumer discretionary trailing. The high yield market has also had a poor start to the year, with the CDS index climbing (negative for prices) to its highest level of the year, 387.097 today compared to the 314.425 close on the 31st of December 2015. High yield bonds are typically highly correlated equities, and reflects this performance as the current risk off approach spreads cross-asset.

Gold has been one of the few asset classes that has seen an improved performance since the beginning of the year, as the ‘safe heaven’ asset class was driven up by demand, up around 3% YTD. The gold market has seen a sharp decline in recent times, with the element falling around 15% over the past year.

This article was issued by Simon Psaila, Treasury Officer 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.