Finance Friday 02.10.2015

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Finance Friday

di Nikola Kedhi.

Wondering what has happened lately in the markets? What are investors doing and what influences their decisions? In this new weekly column, Tra i Leoni brings you some of the most important news from the world of finance.

The shares of Glencore — a multinational commodity trading and mining company — started the week with a significant fall. Its shares sank 29% in London on Monday. While the stock later rebounded on the London Stock Exchange, the next day the company sank 29% in Hong Kong. Analysts are worried about the consequences this retreat may have. Glencore is one of the world’s largest commodities companies and the possible domino effect from a continuing decrease in its shares causes market participants to shiver. The commodity giant has a high leverage ratio and the fear is that they may not be able to control their large debt. Citigroup analysts suggest Glencore should go private if the situation escalates. However, the company’s board has remained silent up to now, much to the dismay of investors.

Unfortunately, Glencore’s predicament is just a fragment of the confusion in the commodity markets. There has been a 15-month fall in commodity prices (this year copper alone has fallen around 20%) which has been a continuous cause of concern for all market participants. The consensus among analysts is that the situation is not likely to change in the coming weeks.

European stocks were also affected by the global uncertainty that seems to be spreading across the markets. The Stoxx Europe 600 Index dropped to its lowest levels since January. According to various experts, these stocks are now entering bear market territory. Until now, the index has sunk 19% from its highest levels, reached in April. This decline has been partly caused by this summer’s fall in Asian stock markets which continue to be a cause for uncertainty. Moreover, the recent scandal involving Volkswagen has led to a 27% decline in auto stocks, which is considered the steepest drop in four years.

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Euro area’s inflation rate turned negative for the first time since April. This was not expected by experts and is seen as additional pressure on the ECB to encourage further monetary stimulus. Earlier this month ECB President Mario Draghi has already said that they would expand their Quantitative Easing program if need be. With this unexpected change in the inflation rate, it is certain that the ECB will follow this route.

This week Warren Buffet returned to the headlines as he cut his stake in Munich Re Group, one of the world’s leading reinsurers. Bloomberg reports that he lowered his holding to 9.7% from around 12%. According to Buffet himself, this is a business that has turned for the worse and there is not much that can be done about it. In August his company Berkshire Hathaway purchased a $4.5 billion stake in Phillips 66, an oil refiner in Houston, Texas. Over the past few weeks, he has continuously adjusted his company’s portfolio amid growing concerns about market conditions.

Tesla Motors has presented its first sport utility vehicles, called Model X. Being an all-electric car, it is one of the most anticipated models for this year. Details for the price have not been released yet, but the cost is said to have been $132000. Interestingly, the day after the announcement the stock price was not influenced by the news. Analysts say that since there are still 18 months until the car is available to the public, it is still too early to expect a reaction in the financial markets.

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