Market Commentary | U.K. - Uncertainty Continues

European markets continued on their downtrend on Wednesday amidst a growing uncertainty about the global economic outlook caused by the U.K.’s vote to leave the European Union two weeks ago. The Stoxx Europe 600 dropped around 1.5%. The DAX, the CAC 40 and the FTSE 100 also took a beating dropping approximately 2%. The most influenced sectors were financial, telecoms and technology.

In the Banking Sector, shares in Deutsche Bank underperformed touching a 6.87% plunge. The bank’s global foreign exchange chief, Ahmet Arinc, is stepping down. Deutsche Bank has not reached a deal with the U.S Department of Justice to settle disputes that its traders were amongst those who played a role in rigging currency rates. Credit Suisse Group AG and Commerzbank were also down heading to their lower share-price closes. Meanwhile, in Italy, Banca Monte Dei Paschi di Siena (MPS) was trading in the green after the Italian Securities regulator Consob banned short selling in the bank’s shares. The European Central Bank has been pushing MPS to reduce its amount of non-performing loans.

As shares were losing in value, safe-haven assets gained. Gold rose around 0.5%, marking the sixth consecutive day of gains. Japanese yen strengthened against the U.S. dollar, the EURO, and the British Pound, as market suffered losses on the re-awakening of Brexit fears. Government Bonds also gained ground-sending yields to record low. The yield on benchmark German 10-year bond touched a record low of minus 0.19%.

Oil traded with gains during the first hour of trading. However, the crude returned to losses due to the same fears over U.K. Additionally OPEC announced earlier that its June production was on record highs and Iran reiterated its stance on increasing oil production after sanction were lifted in January.

In the Automotive sector, Britain is seeing a drop in new car registrations, as this fell for the second time in more than four years. The number of shoppers diminished around 3.4% in the days following the referendum shock vote. The first decline in sales was last October partly blaming the diesel emission scandal of Volkswagen. In Europe, shares in Peugeot and Renault also underperformed.

Market sentiment also influenced the Real Estate Sector. Three British Real Estate companies were in the red, after trading in their commercial property fund was temporarily suspended. In fact, shares in Standard Life plc was down around 4%, Aviva PLC dropped approx. 7% and Prudential PLC was in the region of minus 4.5%

Although the current focus is the U.K., Greece is still encountering problems. The chief executive and deputy of Greece’s rescue fund have stepped down as lenders struggle to get a grip on the EUR 100 billion of bad loans brought on by the country’s economic downturn. The announcement came after the International Monetary Fund and Eurozone nations are calling for a better handling of bad loans to free up fresh credit to the economy. 

Not all bad news for the U.K., as industrial investor Melrose Industries plc will acquire the Ventilation, security and home automation manufacturer Nortek, making the most important international transaction by a British company since the Brexit vote. The deal is worth $2.8 billion. Nortek’s revenue for last year was $2.63 billion and it had an operating profit of $220.1 million. Nortek shares jumped over 30%.

This article was issued by Rodrick Duca, 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.