ETX Capital Daily Market Bite, 18th June, 2013; Markets Wait For Fed; Digest Draghi Comments
June 18, 2013 9:46 am
June 18th 2013, Daily Market Bite from Ishaq Siddiqi Market Strategist A mild pullback for European stock markets this morning following modest gains in the previous session with investors adopting caution ahead of the start of the Federal Reserve’s two-day policy meeting with an outcome due Wednesday. Traders are feeling a little less nervous about an imminent unwinding of asset purchases by the Fed at Wednesday’s meeting but rather some clarity and a reiteration that rates will remain at ultra-low levels until 2015 or so. After Bernanke’s testimony and the Fed meeting minutes on May 22, risk assets have declined sharply while bond yields have spiked and volatility has shot through the roof. It’s likely that Bernanke will spend most of the press conference downplaying market fears in a dovish manner and hopefully offering a time-line of when the Fed will start to scale back quantitative easing. Before the European stock market open after ECB Chief Mario Draghi restated he will do whatever it takes to save the euro zone economy, stating that he has an “open mind” over using non-conventional policy tools. Draghi added that if the situation warrants the need for additional measures, the ECB will dig into its tool box and deploy the “numerous” options it has available. After failing to respond to market nerves over the deteriorating situation in the euro zone at the June ECB policy meeting, Draghi’s comments this morning should restore some confidence over the ECB’s ability to act. But, that does not seem to be the case as investors have heard it all before — Draghi’s “whatever it takes” remarks last year drove a rally across risk-assets with investors cheering an OMT programme which has not even been used. As such, investors’ patience is close to running thin with Draghi’s pledges and it’s a matter of time before the market calls Draghi’s bluff. The ECB will have to put its money where its mouth is and respond with monetary policy measures at the next policy meeting in July in order to regain the markets’ confidence. EUR/USD received a bit of a slapping after Draghi’s comments but it’s likely that this move is more in reaction to the hesitation in the forex market ahead of the FOMC meeting. Overnight, Asian markets were mildly lower on caution ahead of the FOMC but moves were not too dramatic, especially for the volatile Nikkie 225 index in Japan which had a subdued session on the whole. Investors are casting their eyes on the German ZEW survey together with the UK inflation and producer price data. In the US, we also have inflation data and housing starts, the latter of which should be solid given the strong jump in the NAHB housing report released in Monday’s session. In corporate news, Kabel Deutschland shares are up 4% after Liberty Global entered a bidding race with Vodafone by making a potential offer for the German telecom group. We are set to see a bidding war take place as Liberty’s bid is reportedly higher that of Vodafone’s, at around EUR85 per share. Vodafone will have to pay-up [over EUR90] in order to remain in the race which it is likely to do given it has expressed interest in Kabel since February this year. Liberty recently snapped up Virgin Media for $23.3billion so buying cable and broadband operator Kabel makes absolute strategic sense for Liberty, boosting the company’s presence in the European market. Synergies between Virgin and Kabel also build a stronger case for Liberty to snap up the German telecom company. For Vodafone, we could see some hesitation as the group has a history of over-paying for acquisitions. Vodafone’s board for that reason may be reluctant to see what sort of value Kabel can provide if the price-tag increases further. Although Kabel provides an opportunity shore up its European operations with an opportunity to enter Germany’s cable market, a deal for Kabel could be too costly to justify to shareholders.
June 18th 2013, Daily Market Bite from Ishaq Siddiqi Market Strategist
A mild pullback for European stock markets this morning following modest gains in the previous session with investors adopting caution ahead of the start of the Federal Reserve’s two-day policy meeting with an outcome due Wednesday. Traders are feeling a little less nervous about an imminent unwinding of asset purchases by the Fed at Wednesday’s meeting but rather some clarity and a reiteration that rates will remain at ultra-low levels until 2015 or so. After Bernanke’s testimony and the Fed meeting minutes on May 22, risk assets have declined sharply while bond yields have spiked and volatility has shot through the roof. It’s likely that Bernanke will spend most of the press conference downplaying market fears in a dovish manner and hopefully offering a time-line of when the Fed will start to scale back quantitative easing.
Before the European stock market open after ECB Chief Mario Draghi restated he will do whatever it takes to save the euro zone economy, stating that he has an “open mind” over using non-conventional policy tools. Draghi added that if the situation warrants the need for additional measures, the ECB will dig into its tool box and deploy the “numerous” options it has available. After failing to respond to market nerves over the deteriorating situation in the euro zone at the June ECB policy meeting, Draghi’s comments this morning should restore some confidence over the ECB’s ability to act. But, that does not seem to be the case as investors have heard it all before — Draghi’s “whatever it takes” remarks last year drove a rally across risk-assets with investors cheering an OMT programme which has not even been used.
As such, investors’ patience is close to running thin with Draghi’s pledges and it’s a matter of time before the market calls Draghi’s bluff. The ECB will have to put its money where its mouth is and respond with monetary policy measures at the next policy meeting in July in order to regain the markets’ confidence. EUR/USD received a bit of a slapping after Draghi’s comments but it’s likely that this move is more in reaction to the hesitation in the forex market ahead of the FOMC meeting. Overnight, Asian markets were mildly lower on caution ahead of the FOMC but moves were not too dramatic, especially for the volatile Nikkie 225 index in Japan which had a subdued session on the whole. Investors are casting their eyes on the German ZEW survey together with the UK inflation and producer price data. In the US, we also have inflation data and housing starts, the latter of which should be solid given the strong jump in the NAHB housing report released in Monday’s session.
In corporate news, Kabel Deutschland shares are up 4% after Liberty Global entered a bidding race with Vodafone by making a potential offer for the German telecom group. We are set to see a bidding war take place as Liberty’s bid is reportedly higher that of Vodafone’s, at around EUR85 per share. Vodafone will have to pay-up [over EUR90] in order to remain in the race which it is likely to do given it has expressed interest in Kabel since February this year.
Liberty recently snapped up Virgin Media for $23.3billion so buying cable and broadband operator Kabel makes absolute strategic sense for Liberty, boosting the company’s presence in the European market. Synergies between Virgin and Kabel also build a stronger case for Liberty to snap up the German telecom company. For Vodafone, we could see some hesitation as the group has a history of over-paying for acquisitions. Vodafone’s board for that reason may be reluctant to see what sort of value Kabel can provide if the price-tag increases further. Although Kabel provides an opportunity shore up its European operations with an opportunity to enter Germany’s cable market, a deal for Kabel could be too costly to justify to shareholders.
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