Market commentary: An eventful start to the week

Brussels is – unfortunately – the main headline this morning after a suspected terror attack in its main airport. European shares fell the most in a week with most airlines bearing the brunt, while traditional safe haven assets such as gold, the yen and most government bond prices rose. US stock futures are also pointing to a lower open.

It was an eventful Monday for the markets. Obama made history visiting Cuba in a bid to ease tensions between the two countries, and the FBI may have found a way to crack the infamous San Bernardino iPhone. Meanwhile, Apple has unveiled a new mid-range iPhone SE, in a bid to win over customers in emerging markets and those who disapprove of the ever-increasing screen size trend. Apple is hoping the cheaper model will stimulate overall iPhone sales, after the company forecast the first ever decline in sales.

Some analysts are worried that Apple is moving away from the innovative strategy which made it so successful in the past decade and is becoming more and more concerned with incremental upgrades and catching up to markets trends, rather than driving them. The company showed off new wristbands for the Apple Watch and a new iPad Pro tablet, and a robot called Liam to take apart old iPhones and reuse the materials, but none of those moves generated much excitement among investors. Apple shares were flat on the day, but are down 20% from its all-time high of $133 just over a year ago.

Drugmaker Valeant Pharmaceuticals is continuing its shake up of top management – its CEO is leaving and billionaire investor William Ackman joins the board in the wake of its accounting problems in a bid to save its business. The Canadian company whose operations include prescription drugs, consumer products and the popular Bausch & Lomb brand, has lost nearly 90%of its value as it came under public scrutiny for its pricing and distribution practices, including investigations by Congress and various government agencies.

Last week the company suffered its biggest one day loss as shares fell 50% after it disclosed it could miss its reporting deadlines, causing it to jeopardise plans to borrow and sustain its operations. The company also made significant negative revisions to critical performance indicators such as sales, revenues and loss provisions.

News from the mergers and acquisitions sphere - IHS Inc agreed to acquire London-based Markit Ltd. to bulk up in financial services. IHS is a publisher and provider of information for industries including finance, aerospace, automakers, energy and technology. Markit compiles indexes for financial products, including credit-default swaps.

Shareholders of IHS will get about 57% of the enlarged company and stockholders of Markit – which is being valued at about $5.5 billion through the deal – will get the rest. The new company will be called IHS Markit, would have $3.3 billion in revenue based on 2015 results.

In a quasi-dramatic turn of events the owner of the Sheraton and Westin brands, Starwood Hotels and Resorts Worldwide accepted a revised – and higher – offer of $13.6 billion from its peer Marriott International. Only last week it was in talks with China’s Anbang Insurance Group which already owns New York’s Waldorf Astoria Hotel.

The Fed won’t hike, right?

After what seemed like a dismissal of near-term rate hikes by Fed Chairman Janet Yellen in the Fed’s last meeting, two officials said interest-rate increases may be warranted as soon as the central bank’s meeting next month, citing solid readings on the U.S. economy despite headwinds from abroad, even as home re-sales fell sharply in February in a potentially troubling sign for the US economy.

Current pricing shows a probability of a rate hike in April at 8% compared to 27% a week ago, but if you’re Goldman Sachs, that pricing is completely wrong. Dismissing the theory of co-ordinated central bank intervention, analyst at Goldman are suggesting that the strength of the US economy in the face of a now stabilized global economy will force the Fed to raise more than the market is expecting this year, ultimately respecting its original scenario of four rate hikes.

Failure to do so might leave the US exposed to significant overheating and inflation overshooting, causing to act far more aggressively and potentially tipping the economy into recession.

This article was issued by Andrew Martinelli, Trader 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.