Market Commentary | Panic Eases?

Volatility driven by uncertainty over the future path of US interest rates has made quite a comeback because – guess what – the market felt it was underestimating the odds of a rate hike by the US Federal Reserve.

Last week ended with a broad sell-off in bonds and stocks as traders corrected their positions after a slew of Fed speakers raised expectations of an earlier-than-thought rate hike. Most sovereign bonds hit three-month highs – US 10-year treasuries peaked at just over 1.69%, German bund yields turned positive, and Spanish and Italian yields rose over 20 basis points each.

Stocks had a heck of a beating, and European stocks are struggling to recover much ground, whereas US bourses have managed to make up more than half of Friday’s losses in the latest session, after Lael Brainard – a voting member of the Federal Reserve Board – called for prudence in raising interest rates. The rally may be difficult to sustain though, as US futures are signalling a hefty drop on the open.

Oil has whipsawed – making significant gains on Thursday, giving them all up on Friday, rallying late on Monday and giving back those gains this morning.

Good News and Bad News in M&A

Yesterday’s merger and acquisition highlights include a new merger attempt and a failed one. Talks between German industrial gas group giant Linde and US rival Praxair have ended after disagreements over key roles, locations and activities. Stocks in both companies fell on the news but recovered to levels just above those seen before news of the potential merger hit the wires.

In the latest attempt at an agricultural merger, Agrium and Potash Corp agreed to combine in a deal which would create a farming and fertilizer behemoth with a market value in excess of $36 billion. Potash Corp, the world’s largest crop nutrient company by capacity and Agrium, the largest farm retailer in North America, said the combined entity would be biggest crop nutrient company in the world, drawing attention and scrutiny from US regulators.

Oil Glut Here to Stay

Oil bulls look away – the latest supply and demand forecasts for black gold show that the global supply glut is set to persist for longer than previously thought. As consumption from China and India slows down – reigning in the growth rate in demand – supply, particularly from non-OPEC countries looks set to increase. Gulf members of OPEC at pumping at record highs, and OPEC’s own forecasts now show that rival supply will increase by around 200,000 barrels per day, or bpd, in 2017.

This marks a significant departure from its previous forecast which saw supply decrease by 150,000 bpd in 2017. All-in-all, this means a fourth straight year of supply outstripping demand, and the trend is seen to continue through most of next year. Rebalancing can wait…

Cameron Leaves the Commons

Former UK Prime Minister David Cameron is resigning his seat in Parliament, after stepping down from the UK top political job in the wake of the Brexit vote. Cameron had previously stated he’d stay on as a Member of Parliament, but his party is now being run in a way which is mostly at odds with his views. He admitted it would not be possible to be a proper backbench MP as a former prime minister with the current political state of things. His resignation will now trigger a by-election in his Witney district.

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.