Good morning!

Yesterday the markets found little reason for trading higher as the day opened with news that Barclays was charged by the US authorities with manipulating investors and continued with weak US consumer spending data and one of the Fed heads commenting on the possibility of a rise in interest rates in March 2015. Against this backdrop, the major stock markets around the world closed lower with S&P 500 loosing 0.12% and EuroStoxx falling by 0.59%; the futures are currently indicating that the opening might be marginally positive in Europe. Similarly, the sovereign bond markets saw a slight risk discharge as the peripherals generally widened albeit not significantly and the German long term bond yields fell, as did the US Treasuries. Indeed, the latter are now closer to 2.5% as the combination of subdued economic data and hawkish comments of Federal Reserve Bank of St. Louis President was due to increase the investors’ concern regarding an earlier than optimal tightening of the monetary policy which would impair the growth outlook and, by extension, the stock valuations and long term yields.

The poor consumer spending monthly growth (0.2% versus 0.4% expected) was particularly hard to bear since it follows the recent downward revision in Q1 growth data and also because consumption is widely quoted as one of the main growth drivers looking forward. As such, yesterday some research houses said that they are revising their Q2 growth projections downwards.

The Asian markets were also dominated by the US statistics with the below expectations change in Japanese household spending also hampering sentiment. Nevertheless, the UK equities were supported by the London Stock Exchange’s announcement that it has agreed to buy Frank Russell and by the Bank of England’s somehow lighter than feared macroprudential measures. That is, yesterday BOE took steps to control indebtedness and put a halt on the strong increase in house prices by limiting the value of higher risk mortgages (i.e. loan value of more than 4.5 times the annual income) to 15% of the new loans portfolio. Also, the banks are now expected to make sure that those looking to borrow can withstand a 3% sudden jump in rates.

On the geopolitical front we have not seen much progress. In Ukraine however the President warned that he is contemplating not extending the ceasefire as the separatists appear to use it to gain time and not to resolve the stalemate. Even so, Gazprombank marketed yesterday a 5 year Euro denominated bond which was priced at 4%; as a reminder, Sberbank did a similar move a few days ago. Meanwhile, other former soviet countries are taking steps to follow Ukraine in tightening their relationship with the European Union. That is, Moldova and Georgia will sign today a free trade agreement with the European Union.

Ahead we have a data-reach day which includes German and Spanish inflation, French consumer spending, Spanish retail sales, European economic confidence, UK final GDP growth figures for Q1 as well as the latest reading of the US Consumer Confidence Index.

Have a nice day!

Raluca