Market Commentary | ECB purchases securities from troubled firms

Most stocks markets traded lower both in the developed world and in emerging markets, as did oil and metals after a three-day rally which pushed some major indices to multi-month highs. Yields on UK gilts fell to a record low with the 10-year note touching 1.22%, and German 10-year bunds matched yesterday’s record low of 0.033%. Bonds prices rose across both the sovereign and the corporate sector as the European Central Bank started buying corporate bonds as part of its existing asset-purchase program.

ECB purchases included securities issued by troubled German carmaker Volkswagen, tyremaker Continental and French mobile company Orange, according to unidentified sources familiar with the matters. The ECB bought bonds from sectors including chemicals, infrastructure, autos and utilities. The sources mentioned acquisitions of notes by Telecom Italia, AB InBev NV, Siemens, Renault, Engie and RWE amongst others.

The recent risk-on mood brought about by data on moderate global growth and accommodative monetary policy seemed to have peaked. Caution ahead of the impending Federal Reserve meeting, followed shortly by the Brexit vote seems to have come to the fore once again. Earlier this week Fed Chair Janet Yellen had given a boost to risk following remarks that the US economy is making progress and indications that policy makers won’t rush to raise interest rates. Pricing now shows no chance of a rate hike in June. December is the first month with at least even odds of a rate increase, although Goldman Sachs have argued that July and September are also live meetings.

The disclosure by renowned investor George Soros that he had made a series of bearish bets in the recent days definitely did not help. Indeed, it may be at the forefront of investor’s minds more than one might think for a very particular reason. George Soros famously (or “infamously”, if you were long the British Pound in September of 1992) made a cool $1 billion dollars by betting against the sterling currency in 1992. The timing of the disclosure, a mere 2 weeks before what is arguably the most important vote in a generation for the UK, is curious at best and worrying at worst.

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.