Data rich day ahead

Good morning!

Yesterday we had some swings in European equity markets which took cue from the US and then having to contend with the negative reading for the German inflation. The preliminary data for January showed a 0.5% annual decline in prices in Europe’s core economy, which came nowhere near analysts’ estimates (-0.2%). As bad as this might be, it is as well true that the aggressiveness of the European Central Bank’s policy increased only recently and cannot be expected to have such a timely effect on inflation. However, the reality is that many are floating the idea that for Euroarea, deflation is not just a monetary phenomenon but also a symptom of its structural problems; hence, whereas investors have been eager to join the rally spurred by the ECB’s unlashing on liquidity, they seem simultaneously worried that figures such as this might make markets more attentive of fundamentals. Still, with the government bond buying programme (QE) just a few days old, the EuroStoxx50 Index ultimately closed higher and today will have to face the inflation figure for the Euroarea.

Moving across the Ocean, the earnings releases of some major companies, such as Ford, Dow Chemical, Colgate Palmolive, Abott Laboratories and ConocoPhilipps were on spotlight while two major oil companies –ConocoPhillips and Occidental Petroleum-made the headlines after beating estimates and slashing their capital spending plans. Later in the evening, Amazon, Visa and Google released their financial figures which, for the first two, were better than projected; as result, in the pre market the Amazon stock is up 12% whereas Visa is positioned for a 4% positive gain today. Of note, Visa’s achievements seem to have spilled over to Mastercard’s equity which, as we are writing, is quoted 3.72% higher pre market; the company will publish its results today. On the data front, we also highlight that the weekly change in unemployment claims fell much more than expected and actually stood at a multi-year low. However, this left yields rather unchanged as investors appear to be weighting in the risks stemming from outside the US and the downward pressure on inflation exercised by the stronger USD. Indeed at this stage risks appear skewed towards a delay in rate hiking, rather than a sooner than expected change in the key interest rate. This should incentivise investments in corporate bonds as well, particularly as the yields for EUR securities are comparatively less appealing. What is more, sometimes even for the same issuer we note relevant gaps between the spreads on their EUR bonds and those on the USD ones, reflecting the ‘search for yield’ that has taken hold of the European markets ahead and following the ECB measures and the lower issuance of EUR investment grade paper seen over the last few years. Albeit not a perfect metric of the momentum, Bloomberg pointed yesterday that there is some evidence that investors are shifting their attention to the US corporate bond market as an ETF tracking it (Ishares USD Corporate Bond UCITS) experienced a steady increase in inflows. Relatedly, Lipper data published yesterday showed that the US high yield retail funds saw strong inflows over the previous week (USD2.8 billion) in a sign that investors might be ready to overlook the markets’ exposure to oil companies and take advantage of the higher yields on offer after the USD market significantly underperformed its EUR counterpart over the second semester of 2014. Indeed, the performance of the US high yield names so far this year is reassuring.

Looking ahead, a flurry of economic data is due to be released today, many of which deemed to be market movers – German Retail Sales, French Consumer Spending, Spanish GDP, Eurozone inflation and unemployment, US GDP and US consumer sentiment. To these, we add the corporate earnings of some blue chips, among which Chevron, Xerox and Mastercard. On the geopolitical scene, we will continue to follow the rhetoric of Greek officials and the progress on Russian sanctions debates, two topics which lately appeared to have some common factor.

Have a nice day!

Raluca