Market Commentary | Central Banks dominate market sentiment

European markets were under the weather on Monday as Central Banks came to dominate market sentiment. Markets are looking ahead to the European Central Bank (ECB) monetary policy meeting. Contributing to the sour mood are weak company reports from heavyweight companies such as the British Multinational publishing and Education Company Pearson – down 8.41% and Norwegian Seafood Marine Harvest – down 4.45% weighed on the market. Pearson warned of tough trading conditions although cost cuts enabled it to reach its year outlook, whilst Marine had to cut its 2016 output expectations. However, the Italian banking sector rose which was buoyed by a series of merger activities. UniCredit confirmed it was in talks to sell its stake in Bank Pekao, and shareholders approved the merger between Banco Popolare and Banca Popolare di Milano.

The European Central Bank slowed the pace of its weekly corporate bond purchases to €1.835 billion bought last week, from €2.24 billion at the start of this month. This data comes amid recent rumors that the ECB is planning to taper its quantitative easing program, even though Mr Draghi may deny these speculations at the monetary policy meeting this Thursday.

Keeping our focus on Central Banks, British Government Bonds showed a decrease in yields after the Bank of England released results of its latest report on asset purchases. The Bank bought £1.17 billion in short-dated gilts with maturity three to seven years with a cover ratio of 3.05, which is down from 4.11 in the previous week. After reaching a high of 1.22%, on the back of weaker pound and rising inflation expectations, the yield on 10-year government bond slowed down to 1.12%.

Energy prices traded in the red as markets remained fearful of the crude market oversupply since there are renewed doubts over how much OPEC’s measures of cutting the output are effective. OPEC members had agreed on a new output freeze, due in November, in attempts to stabilise the energy market.

Other news

In the UK, gaming giants Ladbrokes and Gala Coral have mutually agreed to sell 359 betting shops to rival bookmakers in an attempt to meet requirements set by the regulator to approve their £2.3 billion merger to allow fair competition. The bookmaker Betfred will be getting 322 shops and another 37 shops to be acquired by Stan James. The news led Ladbrokes shares down by 1.10%.

In the US, Bank of America, reported its first profit increase in three-quarters, beating expectations for another fall, as bond trading soared and expenses were down. Quarterly profit was at its highest in a decade before tax deductions. Earnings per shares were up to 41 cents from 38 cents in the year 2015, foiling market expectation with a decline to 34 cents per share. Shares in the Bank were little changed, they opened higher but gradually trading flat.

This article was issued by Rodrick Duca, 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 Investments Services Ltd has not verified and consequently neither warrants the accuracy nor the veracity of any information, views or opinions appearing on this website.