Markets hold their ground

Following Tuesday’s strong results the markets continued to display resilience after a mixed start to trading yesterday. The Euro Stoxx 50, an index of the fifty largest European companies closed 0.35% higher. The strongest performance was witnessed in Spain with the IBEX 35 increasing 0.66% while on the opposite end the German DAX closed 0.04% lower.

The session was dictated by reactions to comments by central bank governors who seem to remain the continued focus of investors. In the scheduled release of minutes of April’s FOMC meeting, Yellen reportedly said that she is “reasonably confident” the Federal Reserve can drive up consumer prices. Mario Draghi says his European Central Bank’s stimulus has already “proven so far to be potent.” The Bank of England reckons inflation is “likely to return” to its target within two years.

In its April statement, fed policy makers said the economy slowed partly reflecting “transitory factors” and that it expected growth at a “moderate pace”. Since then labour data has improved and weaker manufacturing data has forced economists to lower economic growth projections.

On the local market we are seeing the longer dated Malta government bonds recovering from the recent sell-off with the 25-year issue trading up to 113.19 before closing at 112.75. Interestingly the issue is trading above the central bank yield curve, as it was being bid for at 112.29. This could be a sign that the panic sell-off is over and we are seeing buyers entering the market again, albeit cautiously optimistic it seems due to comparatively low volumes. Other European sovereign bonds were largely unchanged and the 10 year US Treasury yields were also marginally lower, at 2.24%.

Yesterday in the local corporate bond market we saw the initial trading of the new IHI issue. I was surprised to see that the new issue traded up as much 108.50 when shorter dated paper of shorter maturity has been trading around the 103.50 level for a significant period of time! I attribute the inconsistency to the extremely low allocation received by applicants, and also due to the increased cash on hand investors may have at the moment as a result of the sell-off witnessed in the beginning of May.

International bonds largely traded flat, with the ITX crossover and ITX Europe 125 and CDX indices unchanged. Good news from Marfrig, the Brazilian based largest meat producer in the world which saw its bonds and equities trade significantly higher after reports that China lifted the embargo on the importation of meat from Brazil.

Looking ahead at what’s on the menu today, focus will quickly shift from yesterday’s FOMC minutes to what is a busy day for data today as well as more Central Bank attention as we get the ECB minutes from the April 14th/15th meeting around midday. This morning’s data releases will be highlighted by the May flash manufacturing, services and composite prints for the Euro area and also regionally in Germany and France. Euro-area consumer confidence will also be due while in the UK, April’s retail sales are due out. In the US this afternoon we kick off with the Chicago Fed national activity index, followed closely by initial jobless claims. The flash manufacturing PMI will follow this, before we get the May reading for the Philadelphia Fed business outlook, existing home sales, the conference board’s leading indicators and finally the Kansas City Fed manufacturing activity print. As well as this, Fed Vice-Chair Fischer is due to speak. A busy day ahead.