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Yesterday stock markets showed mixed performances, with the Eustoxx advancing shyly and US equities declining after economic data provided contrasting signals (revised Q4 GDP growth was below expectations despite the upward revision but unemployment claims surprised positively). Citibank, HSBC and RBS lost ground after Fed stress results singled them out; this could lead to a delay in the flotation of RBS’ local unit which was scheduled for the second semester of this year.
Meanwhile, the emerging markets defeated this year’s prevailing downside momentum and closed the day higher; Brazilian and Indian markets were particularly strong after the latest polls showed that the president in function stands small chances of being re-elected this year and the Indian rupee strengthened. We have just two trading days left this month and the S&P50’s year-to-day (YTD) return is only 0.34%; as we are writing, the futures point to a slightly positive open today but an eventual surprise in consumer sentiment data due today might alter this. The European stocks over-performed the US so far this year but they are also close to a negative YTD performance.
The Asian markets were also up mainly on increasing hopes that new economic stimulus is on its way in China. The Japan finance minister also disclosed that following subdued economic data, government spending will increase in the upcoming quarter by bringing forward part of the next year’s spending envelope. The uptick in spending is meant to alleviate the drag on consumption that the VAT increase will have and keep inflation expectations in control; currently the market consensus is that the authorities will fail to meet their target for 2% inflation in two years’ time.
We would also point to the latest monetary data published by ECB yesterday as a potential driver of markets in the upcoming days. Specifically, we still saw sluggish growth in monetary aggregates and a continued decline in private credit; indeed, the year on year growth in credit was -2.2% in February, below market expectations, and in contrast to Draghi’s goal of strengthening the monetary transmission mechanism. This adds up to the wages on further quantitative easing ahead of next week’s monetary policy meeting and follows this week’s comments of various ECB policymakers that seemed geared towards additional easing. As a reminder, similar speculations were rife ahead of the previous policy meeting when ECB decided to wait for further data. Still, as expectations are a keystone of the current policy, the ECB could eventually be forced to take stock of them. Until the next meeting we however will have to see the latest inflation reading on Monday.
Needless to say that the developments relating to Ukraine-Russia standoff continued to take priority in media and remained a main driver of markets. Yesterday brought some relief after US Senate approved USD1 billion loan guarantees for Ukraine and IMF announced that it will extend 14-18 USD billion pending some reforms, among which a 50% increase in gas prices. EU is also set to pledge as much as EUR11 billion in a multiyear plan. On the political front, the situation remains tense as Western leaders continue to express disapproval of the Crimean annexation and the former Ukrainian premier Tymoshenk announcing that she is planning to run for president; the local leader reportedly stated that she is hoping to recover Crimea and that she is planning to build a strong army. On another note, Reuters reported that the Moldavian President cautioned that he saw "a series of provocations" from Tranistria’s separatists.
As mentioned earlier, today we are expecting data on US consumer sentiment as well as preliminary German inflation data and measures of consumptions from UK and France (consumer sentiments and consumer spending respectively); from UK we will also receive data on final GDP growth. Later in the day, during the US session, investors will also have the chance of listening to further hints on ECB’s upcoming steps as ECB’s Weidmann is expected to deliver a speech in Frankfurt.
Have a nice day,
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