Good morning!

Yesterday’s mix of disappointing economic data and corporate earnings underpinned a risk off trading session which concluded with the European equities about 1.22% lower and the US market down by 1.34%. Early during the day, it was the below expectations results of Siemens, the cut in forecasts of Philips and the continuous build-up in Greek crisis which pushed the markets into the negative territory, while later some macroeconomic readings added to the downward pressure. Whereas part of the move could as well be due to the strong performance experienced by the market over the last few weeks, it also serves to underscore the possibility of an increase in volatility as the earnings season progresses. In particular, investors could be eagerly looking for signs or verbal assurance that the depreciating EUR and/or the lower oil price are feeding into their profitability; it is in this context that the Siemens’ and Philips’ statements gained in importance yesterday. Meanwhile, we noticed that, in line with many economic commentaries we saw lately, investors remain sceptical that the bold move announced by ECB last week will help to significantly lift growth and, by extension, inflation. To be more specific, the long term European inflation expectations (as captured by the 5 year-5 year inflation swap) jumped to over 1.75% on the 22nd January but have been declining since then to about 1.6%; ECB in turn considers that a healthy inflation rate is around 2%. Against this background, the demand for investment grade names remains strong whereas in the high yield space the recovery is still uneven.

The US market has also seen a fall in inflation expectations, reflecting the weakness in commodities, an appreciating USD and growth uncertainties abroad, albeit in this case the decline is less worrisome as inflation is still expected to reach 2%. However, this trend has fuelled speculations that Federal Reserve will delay its first rate hike and contributed, together with the decline in European sovereign yields, to the fall in US Government yields. Indeed, just yesterday, the worse than expected durable goods orders sent the 10 year US yield to 1.76%, a level which is significantly lower than the 2.17% recorded on December 31, 2014; such moves bode well for long term bonds which seem set to be outperforming this semester. On another note, the weak durable orders data and the consequent easing in interest rate increase expectations triggered a rebound in EURUSD yesterday to around 1.14. It thus goes without saying that the Federal Reserve Monetary Policy Committee statement scheduled for today will be intensely analysed by investors across the globe.

Moving away from macro data, the US trading section was also marked by the earnings releases of some major companies, among which Caterpillar and Apple. The former, considered by some a barometer of the economy, reported earnings that fell short of expectations, while its 2015 guidance was far below what analysts where forecasting, reflecting the widespread weakness in commodity prices. At the other end, Apple, which published its financial figures after the market closed, topped expectations and remained upbeat about this year’s prospects “We’re guiding to a strong March quarter with revenue up between 14 and 20 percent and that’s in spite of the fact that you’ve heard from many U.S. companies these days that foreign exchange has become a challenge”. As a result, after a negative closing yesterday, the futures point to a higher opening for this stock today (5.74% as we are writing); this might also help a recovery in other technology names as the sector was yesterday the worst performer (-3.27%) following Microsoft’s disappointing figures. Meanwhile, names like Boeing, Visa, Oracle, Johnson & Johnson, Pfizer or Facebook are due to report their latest financial results today.

Have a nice day!