Market commentary: Markets shake off terror

US indices and Asian equities were dragged down in the wake of the terror attack in Brussels but European equities managed to squeeze a small gain after an initial drop. The rebound seems to have continued into this morning with the DAX and the CAC leading the charge.

Global markets understandably fell after initial reports of the attack. When similar incidents occur, uncertainty surges because the scale of the event is unknown. As the news starts trickling in, uncertainty dissipates – as crude as that may sound – and stocks recover.

The major losers of the day were unsurprisingly airline and travel related stocks such as Expedia, Priceline, Royal Caribbean, Ryanair, EasyJet and Qantas to name but a few. Gains in the healthcare sector and a 0.8% rise in Apple helped Wall Street pare some intraday losses.

Britain hurt by Brussels

While some of the moves seen in the market could be termed as ‘predictable’ – the initial rise in gold, the Japanese yen and most sovereign bond prices – perhaps one of the most surprising moves was in the currency space. The Euro was naturally under pressure against most currencies, but not against the British Pound. The GBP dropped more than 1p against the EUR yesterday, and it has fallen even more against the USD this morning, making it the worst performing major currency this week.

Speculation is mounting that the attacks in Europe is boosting the case of pro-Brexit campaigners who want to see Britain out of the European Union and who argue that migration – or rather uncontrolled migration – leaves Britain vulnerable to attack. UK Prime Minister Cameron is on the opposite camp, having said that being part of the EU aids security.

The sterling was already under pressure even before the attacks – rating agency Moody’s has said if the UK leaves the European Union many businesses may see their credit ratings slide on the basis of slower economic growth. A Brexit also carries sector-specific risks – automakers may face new tariffs, large-scale manufacturers and retailers may face supply-chain disruptions and UK universities may lose EU grants and face higher recruitment costs.

In short, according to Moody’s, the potential benefits of The UK leaving the European Union are outweighed by the economic costs.

Deutsche downgrade possible

Moody’s was on the wires again as it sounded a warning on Deutsche Bank. The rating agency said it may cut the German lender’s credit rating amid concerns that it will struggle to restructure its business. Legal charges and an unfavourable economic environment have Deutsche Bank led to the first annual loss in 8 years as it seeks to eliminate thousands of jobs and assets to slim down costs.

Moody’s rates the bank’s senior unsecured debt Baa1, three levels above junk, and its long-term deposits two rungs higher at A2. Each might be lowered one level, according to the statement. Shares have dropped about 26% this year, reaching a low of about €13 last month.

Credit Suisse, another bank whose shares have been under immense pressure this year, announced plans to cut an additional 2,000 jobs this year, on top of another 4,000 which were previously announced. The bank also plans to shrink risk-weighted assets further and to overhaul the business to focus on wealth management. Shares rose on the news but are still just off all-time lows hit in late February.

Amazon taps into cable

Amazon has just rolled out Amazon Cable Store, where it is reselling internet and television services. Right now Amazon is only reselling Comcast packages, but the branding suggests that this is only the first provider in a list of many to come. The Cable Store allows customers to browse a variety of packages – from Internet-only deals up to combined bundles – complete a credit check, and then schedule an installation.

The store also offers promotional items – like a free Amazon Gift Card for signing up – and it promises dedicated customer service for those who buy Comcast’s service from Amazon. This may be a deciding factor for many, since Comcast is often reprimanded for its poor customer service record. The deal already sounds like a win-win – Amazon partnerships with cable providers may lead to content-licensing and providers like Comcast get increased exposure to a digital audience as cable subscriptions continue to decline.

This article was issued by Andrew Martinelli, 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.