MARKET COMMENTARY

Yesterday, the news coming from the developing markets were supportive with US January new home sales surprisingly positive, UK GDP details showed a strong growth in investments (although the final QoQ growth figure saw no revision) and Greece made progress in agreeing less-stringent capital requirements with its creditors. However, the Ukrainian crises, Russian military exercises and emergence of Turkish corruption allegations involving first-class politicians reduced the market responsiveness, with the S&P500 closing almost flat while the Europe Stoxx600 retreated from its multi-year high; it could as well be that some wondered why the new home sales did not show the same vulnerability to weather as we saw for other January house statistics. The US treasury yields also advanced, reflecting in large part technical drivers rather than fundamental factors (i.e. larger auctions, not the positive home sector data). Even so, high yield bonds performed well with spreads tightening by another 2bp and yields at a record-setting 3.9%.

The political developments in emerging markets were however less trivial for the concerned countries; specifically, the Ukrainian and Russian currencies plunged by 4.4% and 0.8% respectively. The last day’s drop adds up to the sizable deprecation seen since the beginning of the year; in Russia the 8.8% YTD downtrend feeds up concerns over the peril of higher deposit dollarization.

Developments in Ukraine are expected to top the headlines for another day. Yesterday, it was widely reported that the opposition’s leader Arseniy Yatsenyuk enjoys broad support; today he is set to face lawmakers’ approval. The formation of a new government would pave the way for international support, which indeed could start to flow in sometime next week (according to the head of European Parliament’s foreign affairs committee). The US is also considering a USD1 billion aid. Moody’s however commented yesterday that aid does not represent a stable solution and that securing such assistance will require unpopular measures; as such, its credit outlook remains negative.

Venezuela in turn saw a positive change in yields after authorities allowed the state-owned oil company PDVSA, companies and individuals to buy and sell dollars in a regulated market. Protests however continue.

The day’s corporate news highlights include:

– RBS reported the largest losses in five years.

– Rabobank’s net income declined marginally.

– Veolia – posted a €135 million loss (2012: €404 million profit) which contrasted strongly with the analysts’ expectations for a €82 million loss. The management expects net income to turn positive this year.

– Allianz – Q413 net income misses estimates (€1.26bn vs €1.3bn) but management reiterates that dividend plans remains intact.

– Telecom Italia’s CEO is reportedly looking to enhance minority investors’ protection by proposing in today’s board meeting stricter criteria for the appointment of independent board members.

– Chesapeake missed profit expectations (four quarter figures stood at EPS $0.27 vs $0.4); 2014 asset sales expected to amount to $1 billion (excluding the possible sale or spinoff of the oilfield services division).

Today’s macro calendar includes US durable orders and unemployment claims data, European consumer confidence, German unemployment and inflatio. Also, investors will be closely listening to the Fed’s Chairman Testimony in Congress.