Good morning!

It is increasingly evident that the last few weeks brought about a change in the low-volatility environment that, during the first part of the year, appeared to have taken hold of the markets. After a positive performance on Wednesday, risk markets reversed their course yesterday even as various Fed officials publicly disclosed their worries about an early rate hike and, another fall in Euro area private lending confirmed that this is one of the critical issues undermining growth and, as such, warrants ECB’s full commitment. In the US, several dovish representatives of the Federal Reserve made a case for delayed tightening in interest rates, with one of them saying for instance that “we should be exceptionally patient in adjusting the stance of U.S. monetary policy – even to the point of allowing a modest overshooting of our inflation target to appropriately balance the risks to our policy objectives”. As a result, the 10 year US government rate fell to below 2.5% this morning from 2.56% a day earlier. The move might have been supported by the weaker than expected durable goods orders although we highlight that the core component of the index came out in line with expectations (i.e. 0.7% monthly growth).

Among the notable underperformers of yesterday’s trading session, in US we note Apple and Microsoft which lost 3.8% and 2.21% respectively and triggered a 2.2% fall in the technology sector. Apple came under spotlight after it acknowledged that the new IPhone can bend under certain conditions and it was forced to withdraw a software update. In Europe, Sanofi and Danone were among the worst performing stocks in STOXX50, while Italian banks like Unicredit and Intensa Sanpaolo also lost around 2%. The weak performance of the UK Index FTSE 100 on the other hand has to be seen in the context of the Bank of England Governor’s comments which suggested that the increase in interest rate is approaching.

On the geopolitical front, France and the US struck Islamic State in Iraq as the French stance harshened after a tourist was beheaded by the same extremist group in Algeria. In Syria, the US was joined by Saudi Arabia and the United Arab Emirates in the strikes against the Islamic State. As another negative development, we refer to a law proposal which would allow Russia to seize foreign assets in the country. In the emerging market space, Argentina came once again under spotlight after analysts expressed their scepticism about the latest GDP figures and the country took an unusual step in an attempt to prevent an additional erosion of its international reserves; specifically, according to a new resolution, the airlines will have to ask each passenger for detailed information about the travelling intentions and method of payment.

This morning we saw a larger than expected drop in GfK German Consumer confidence, just a few days after Ifo German business climate index disappointed. The response of the markets will depend on whether investors’ sentiment will be driven by worries about immediate economic growth or hopes for additional stimulus. Of importance for today’s performance will also be the final US GDP growth figure and the US consumer sentiment which is expected to strengthen.

Have a nice day!