European markets ended down, with investors waiting for the UK elections and the ECB meeting.
Most sectors finished lower, with pharmacists among the worst performing performers after Roche had disappointed the market with the result of a test for a particular treatment. Roche shares fell more than 5%.
In pre-opening, European markets traded with different fluctuations, on a day that would naturally be characterized by an expectant attitude towards tomorrow’s events that could certainly influence financial markets: the UK elections and the ECB meeting . In the more microeconomic field, the banking sector will attract attention, due to the news about Banco Popular. In the long run, equities are influenced almost exclusively by the evolution of corporate profits and interest rates. Most likely, the recent appreciation of European equities is due to an intrinsic factor, in particular to capital flows that continue to flow into Europe. According to Merrill Lynch Bank of America in May, American savers subscribed about 15,000 M.USD in European shareholder funds, to the detriment of US specialized stock funds. As long as these subscriptions are not discontinued, European markets will continue to benefit from this support element.
In the pre-opening, the European markets negotiated with contained gains. For political and economic reasons, today was the most awaited by investors because of the elections in the UK and the ECB meet, as well as the testimony of the former FBI director fired by President Trump. With regard to the legislative elections in England, it should be remembered that although the legislature should only end in 2020, Prime Minister Theresa May called early elections in order to reinforce her majority in Parliament and, consequently, her internal position in the conduct of the Brexit process. The polls open at 7:00 a.m. and close at 10:00 p.m. Regarding the possible reactions of the market to the outcome of the elections, opinions are divided. A minority victory of Congressmen or an indefinite result would, according to some investors, increase political uncertainty but on the other hand would increase the likelihood of a more conciliatory stance of the UK in the process of leaving the EU, called Soft Brexit. A victory for Theresa May would make the future English politician more crystalline but would reinforce the likelihood of a more intransigent UK position, dubbed Hard Brexit. Concerning the ECB meeting in Tallinn (Estonia), no changes are expected in the current monetary conditions, but there is an expectation of the statements made by Mario Draghi in order to try to gauge the future performance of the ECB. Markets are therefore awaiting news on macroeconomic forecasts. The big question is what will be the rhythm of monetary policy normalization, which will first happen by reducing the asset purchase program and later by the increase of the leading rates.
The US stock market ended up high, with investors reacting fundamentally to the testimony of former FBI director James Comey. The Dow Jones industrial average hit an intraday high following James Comey’s comments, though he backed down. The S & P500 closed at a slight high, favored by banks (the SPDR S & P Bank ETF rose more than 2.50%) and conditioned by utilities. The testimony of the former director of the FBI was the event of the most awaited week and was closely monitored by investors to check on the possible impact of James Comey’s words on the implementation of the pro-growth agenda announced by Donad Trump . In terms of economic indicators, the number of weekly applications for unemployment benefits decreased in the first week of June, thus being at least a few decades old. This indicator fell by 10 000 to 245 000 between 28 May and 3 June. Analysts had forecast a further decline to 240,000 applications, but for the 118th consecutive week that figures were below 300,000, signaling a healthy labor market. This is the longest series since 1970, when the labor market had a smaller size.
Investors are showing some caution after the results of the UK election and expectations of the Fed meeting scheduled for this week.
Asian markets ended on mixed ground. Despite the significant drop in technology companies in the US, Asian counterparts presented different directions. Investors are waiting for the start of the US Federal Reserve meeting.
In the pre-opening, the European markets negotiated in different directions. The main theme of the day is the US Federal Reserve meeting, but whose outcome will only be known after European markets close. However, political developments in Europe will continue to be in the spotlight. With regard to the United Kingdom, the leader of the DUP, the Irish unionist party that Theresa May counts on to guarantee the parliamentary majority, said yesterday that the negotiations are “going well” and there should be an agreement “sooner rather than later.” The BBC also said that the agreement could be sealed today. In terms of business, the Spanish company Inditex today presented its results for the first quarter of the year. Net income rose 18% to 654 M. €, in line with analysts’ estimates. Sales were slightly above expectations (€ 5569 M.) and EBITDA stood at € 1113 M., against the expected € 1103 M. €. In terms of economic indicators, industrial production relative to the Euro Zone will be published.
US stocks dropped while the dollar advanced as traders digested the more hawkish tone from the Federal Reserve. The British pound swung to a gain after a split among policy makers over the path of interest rates unexpectedly deepened. The Fed raised interest rates for the second time in 2017 and Chair Janet Yellen suggested the strength of the U.S. labor market will ultimately prevail over recent weakness in inflation.
In the pre-opening, the European markets negotiated in positive territory. The influence of the markets should be the agreement on Greece, while political developments, especially in France, should return to attract attention, since on Sunday is the second round of the elections to Parliament. Meanwhile, oil prices are close to the low of the last six months, in the face of continued fears of over-production and despite OPEC’s efforts to reduce supply. The final estimate of inflation in the Euro Zone for May will be published today, which should confirm a correction of 1.90% to 1.40%, due to the general fall in prices in the main countries of the region. It should be recalled that price behavior will be decisive in shaping market expectations regarding the ECB’s monetary policy.
Oil dropped to the lowest level in seven months, pulling energy stocks down, amid growing concerns that OPEC-led output cuts are failing to ease a global supply glut.
After a long wait, Chinese equities will finally be part of the MSCI Emerging Markets Index. Thus, 222 listed companies in China will integrate this index which is the benchmark for many international fund managers. It is important to note that China already had a weight (26%) in the MSCI Emerging Markets through companies listed on the Hong Kong stock exchange.
The European stock indexes ended without major fluctuations, although they traded most of the day in negative territory.
Attention will now be focused on the behavior of oil and developments in Washington regarding the discussion of the new health system law.
Asian markets closed higher, led by oil companies. In addition, there was a purchase of the sectors that had been penalized the most last week. It should be noted that several markets, such as Indonesia, Singapore, Malaysia, India and the Philippines, were closed because of the end of Ramadan.
Asian markets do not present a common trend. Unlike yesterday, the appreciation of oil could not trigger a sustainable rise.
Hedge funds have in recent weeks accumulated selling positions (supposedly equivalent to 162 million barrels) and have been one of the main causes of the fall in crude.
Oil has prolonged its recent rise, even in the face of the release of energy reserves by the Department of Energy. Oil stocks increased by 118,000 barrels last week, compared to forecasts of a drop of 2.1 million barrels. Gasoline inventories fell by 894 thousand barrels, compared to an expected decrease of about 288 thousand barrels. From a technical point of view, Brent is faced with a zone of resistance formed by the 48.33 / 49.15 levels.
Yesterday, the DAX broke the support formed by the area of ​​12490/12500, which constituted a relevant short / medium technical barrier. It is important to emphasize that in the last 12 months, the stock markets have not suffered any corrections worth noting. The only falls that deserve mention were the ones that followed Brexit and the election of Donald Trump but lasted only a few hours. So if S & P, which we consider to be the leading index of world markets, start trading below 2419 then the likelihood of a larger correction than witnessed in recent months will begin to be significant.
Asian markets closed with contained variance, despite the positive news coming from the Chinese economy. In June, the Caixin PMI index reached 50.4, above the estimated 49.4 and 50.0, which separates a cycle of expansion from a contraction cycle. Unlike the official PMI index prepared by the state authorities, the Caixin PMI index, calculated by a private institution, is compiled through surveys of small and medium private enterprises. These companies are more representative of the more dynamic areas of the Chinese economy than the large state-owned enterprises, which are at the heart of the official PMI index.
Gold is at a critical level and is about to test the 200 week moving average, the last stand of the bulls, plus it is also aligned with the upward trend line.