Yesterday the main event of the day was the intervention of Janet Yellen at the University of Baltimore. The President of the Fed stated that the current phase of the labor market is the strongest in the last decade and that it is beginning to see an acceleration in wage growth. With a 4.70% unemployment rate and the economy running at full employment, it becomes increasingly difficult to find workers (especially for those jobs that require more skills), which forces employers to pay higher wages.
Today, a session with a reduced volume should be attended, and so, the lack of liquidity could generate some more pronounced movements. The Dow Jones test at 20,000 points will be the main theme of the day. Also to be added that the US oil reserves will be published at 3.30 pm.
Despite all the financial media coverage of the Dow Jones’ 20,000 points, investors have been pausing in recent days, resulting in a period of consolidation. The year can be considered ended and can also be considered a good year. Faced with a series of unpredictable events, such as Brexit and Donald Trump’s victory, and how the year started (with a strong correction due to the devaluation of the Chinese currency) to achieve gains between 8% and 12%, 2016 was a particularly positive year. It is quite natural that investors choose to take a break, operating in the market just to position their portfolios for the new year.
The American markets closed with contained losses, and the volume continued to suffer a decrease. The session was marked by the publication of macroeconomic data, which did not influence the trend of major indexes but provided investors and economists with useful information about the US economy. GDP growth relative to the third quarter of the year continues to be revised upwards. According to the Commerce Department, the US economy grew 3.50% in that period, surpassing the 3.20% calculated in November and the forecasts of 3.30%. Starts today the period that corresponds to the so-called Santa Claus Rally. This period includes the last five sessions of the year and the first two of the new year. Over the past 30 years, the S & P performed 26 times, with an average gain of 1.74%. However, given the gains made by Trump Rally, the odds of a strong Santa Claus Rally will probably be lower than in previous years.
The Justice Department has fined 7200 M.USD (6300 M. €) for Deutsche Bank for its conduct in the sale of mortgage-indexed assets before the financial crisis, a preliminary agreement that needs to be made official. According to the bank’s accounts published in September, the bank had a provision for legal costs of about 5500 M. €, which does not only involve this case. Analysts estimated that Deutsche Bank would pay a fine between 2000 M.USD and 5000 M.USD.
The banking sector will remain in the spotlight. In an interview published yesterday by the Bild newspaper, German Central Bank President Jens Weidmann warned that for “measures planned by the Italian Government” to succeed, the institution must be “financially healthy in its core business.” He also said that public funds could not be used to cover in advance potential future bank losses.
The South Korean market was penalized by the worsening political situation and the fall of about 20% from Toshiba which also affected the performance of all Asian exchanges. Toshiba warned yesterday it could incur losses of “several billion dollars” following the purchase of a US nuclear power company.
In the pre-opening session, European indexes traded lower after losses on Wall Street yesterday. In the London market, the FTSE index hit a new all-time high, with some analysts reporting strong expectation of the Trump presidency’s impact on rising consumption. Meanwhile, in addition to the banking sector, the oil sector has attracted attention, as the date of implementation of the agreement between members and non-OPEC members is approaching. This morning, the price of crude fell slightly, after the American Petroleum Institute had revealed inventories of this raw material higher than expected
Looking back, 2016 is marked by the valuation of the most risky assets, in a scenario of a certain optimism regarding the whole global environment. In fact, stock indices in the US recorded significant appreciations (S & P rose about 10%, Dow Jones 13.74% and Nasdaq100 7.08%), while in Europe DAX gained 6.59%.
With the US market closed today, attention will be divided between the currency market, due to the depreciation of the Pound against the Dollar and the Euro in Asian markets, and some business news. Pound depreciated, with investors worried and awaiting the speech of Theresa May, scheduled for tomorrow, regarding more details on the Brexit plan. Over the weekend, the UK Finance Minister said that if the country does not maintain access to the single market, it will have to pursue a “new economic model”. On the other hand, the Italian debt market and the performance of the banking sector in the country should attract attention, after the Canadian ratings agency DBRS on Friday cut Italy’s sovereign credit rating to BBB (high) from A (low) in a move which could raise borrowing costs for struggling Italian banks.
This year broke the tradition of being Alcoa the company that debuted the Earnings Season, due to the split in two companies, so that the disclosure of bank accounts was the starting point. For the fourth quarter, the estimates for results point to a 3% growth in the constituents of the S&P500 index.
In the last few sessions, Dax has been penalized by the weakness of the automobile sector and the appreciation of the Euro against the Dollar (due to the strong weight that exporting companies have in the German index). From the technical point of view, several indicators point to an increasing likelihood of a short-term correction.
In pre-opening, European markets were trading bullish. The main event of the day is the meeting of the European Central Bank, although no significant development is expected after the announcements in December. The speech should confirm the markedly accommodative nature, thus reiterating that the reduction in the monthly amount of asset purchases announced in December is only an adjustment of the program and not the beginning of a gradual reduction of the volume of acquisitions to zero.
Since 1953, the S&P500 has valued on average 1.60% during the first 100 days of the first term of a new US President.
During this week the Earnings Season in Europe gains more intensity, since a greater number of companies will present their quarterly accounts. However, the energy sector may be influenced by the Reuters news that energy ministers from OPEC countries and other major oil producers have reported a positive start to the reduction of oil production. During the Asian session, the Dollar depreciated, with the Euro reaching the highest level of the last month. This afternoon will be disclosed the consumer confidence index for the Euro Zone during January, which is expected to recover from the previous -5.1 to -4.8.
Asian markets are mirroring the uncertainty surrounding the US President’s policies, including the announcement of the withdrawal of the free trade agreement under the transpacific partnership, better known as TPP, which Pacific Ocean. This measure, according to Donald Trump, will protect American workers.
The trend Of the S&P should dictate the course of the European markets and thus the period of greater volatility in the US should quickly spread to Europe, giving rise to a pattern similar to that of Wall Street.
In Italy, the constitutional court rejected part of the electoral law, known as Italicum, which envisaged a second round of ballottaggio elections between the two most voted parties, expected to happen if no political force reached the 40% mark, But kept the clause that automatically guarantees the parliamentary majority to any party that gets 40% of the votes.
Prices in Japan declined in December at a slower pace, thus giving the economy a sign of progress: the consumer price index dropped by 0.20% over the same period in 2015, after the previous decline of 0.40%.
Many of the Asian markets are due to be closed this week, as the Chinese New Year (New Year Lunar), the Year of the Rooster, began on Saturday. Although China uses the Gregorian (global) calendar for most official and business events, the Chinese calendar is still used to determine the days of traditional festivals, such as New Year’s Day, celebration of some birthdays, as well as Use of agriculture (planting, harvesting, etc.) and to identify the 4 seasons. The festivities begin on the day before New Year’s Day and run until February 3 (the day the Chinese stock market reopens), celebrated in several countries in Southeast Asia where there is a significant Chinese population as Taiwan, Singapore, Thailand, Cambodia, Malaysia, among other countries, beyond, of course, China. Since the 1950s the Rooster years have recorded the worst average performances of the S & P500 when compared to the remaining animals of the Zodiac. In the last 50 years, there was an average devaluation of this index of 4.10%.