Dax30 ftse100 sp500 - market-view

Copper hit highest yesterday for the last three and a half years. Sustaining the rise in this raw material are, on a more structural level, positive prospects for the world economy. In fact, the current macroeconomic environment has some unique characteristics. The current phase is marked by a unison of the major economic regions, something that was not observed more than two decades ago. Thus, this whole cycle is guided by a high correlation between the main economies, with the growth of one to stimulate and reinforce the expansion of the others.

European markets ended the last session of 2017 in different directions, with investors looking at the outlook for the coming year. 2017 was marked by an appreciation of the European stock markets, albeit smaller than the US, mainly due to the appreciation of the Euro which is a disadvantage for the region’s exports. The technology sector has appreciated by around 20%, making it one of the best performers in Europe on an annual basis. The producers of raw materials were also highlighted by the positive, driven mainly by the rise in metal prices at the end of the year. In London and Frankfurt, markets closed earlier. The FTSE index appreciated 0.85%, reaching a new high, led by companies in the mining sector. Infrastructure firm Balfour Beatty rose 1.43% after reporting that it had sold an additional stake in Connect Plus. On the other hand, the German market closed with a slight loss, reason why in annual terms the valuation of the DAX index was of 12.60%. In Paris, Airbus shares have been under pressure, despite reports of an order for 430 A320neo planes by private equity firm Indigo Partners.

Today begins the earnings season, which will be one of the central themes of this week.

Oil companies were among the worst performers on Friday, in line with the behavior shown by the price of crude oil in response to OPEC statements about the expectation of a greater supply of this raw material in the market in 2018 by the non-member countries of this organization.

It’s impressive how U.S. stocks ignore the government shutdown drama in Washington and rose to all-time highs.

The results of UBS officially inaugurate the earnings season of the European banking sector. Today, the IMF announce its economic forecasts for 2018. This event is taking place in Davos, Switzerland, where the World Economic Forum will begin tomorrow. This event, attended by politicians, economists, CEOs, central bank presidents, among others, is generally a precious source of insight and opinions from people with a potential to influence the global political-economic environment.

Since December 2012, the US debt limit has been reached and since then the State has operated through a series of legal and accounting subterfuges, without having a budget as such. As time goes by the efficiency and duration of these subterfuges is becoming smaller and it will be important that this problem find a more structural solution.

Yesterday, the main catalyst of the rally were the good results of Netflix. Not only did profits exceed estimates, but the number of subscribers to the company’s media services was much higher than forecast (8.33 million versus 6.39 million). Netflix shares appreciated 10% and boosted the other technology titles that in turn served as the engine for the rest of the market. Not taking any notice of Netflix’s bottom line, the market appears to be going through a phase where investors do not need economic or financial drivers to buy stocks. Positive feeling finds stimuli in itself.

In the uncertain context of recent days, the Hong Kong stock exchange has been a notable exception. This market continues to be used by many global investors as a good way to expose themselves to the Chinese stock markets. In addition to several companies from this country being listed in this market, in the last decade China has become the main economic and commercial partner of this autonomous region, making its companies more interconnected with those of the continent.

Following the close of European stock markets, the US market was trading lower, with investors cautious about rising sovereign bond yields. In the absence of relevant business results, attention was focused on the disclosure of economic indicators.

The Euro rally begins to show some signs of fatigue. A short-term correction may be in progress. A fall below 1.2365 may not imply an immediate appreciation of the European indices if in the US the main indexes begin to show signs of fragility. Often, the devaluation of the Euro translates into a mere overperformance of the markets of the Old Continent vis-à-vis its American counterparts.

It should be noted that of the companies belonging to the S&P 500 index, 80% reported numbers above expectations and 81% beat estimates in terms of revenues. In terms of economic indicators, the ADP employment report showed that 234 000 jobs were created during January, well above the expected 185 000 but below the previous 250 000 observed in December.

Last week the USDCAD fell with a wide range and closed near the low of the week, in addition the currency pair managed to close below the previous week low, which suggests a strong bearish momentum.

Wall Street traded lower on the day the job report was known. The environment was characterized by a rise in yields on sovereign debt and the reaction to business results released yesterday after the closing of three major companies: Alphabet (Google), Amazon and Apple. The employment report showed that 200 000 jobs were created during January, more than the expected 180 000. Salaries rose 0.30%, in line with expectations. These data boosted yields on Treasury Bonds, with 10-Year Treasury Bonds reaching the highest of the last 4 years. Regarding the reaction of technology companies that reported their results yesterday, Apple and Alphabet were downgraded, while Amazon was gaining ground, having already reached a new record high. Of the companies belonging to the S&P500 that have so far submitted their quarterly accounts, 78% exceeded forecasts and 80% exceeded estimates in terms of sales.

The epicenter of the weakness in the stock market lies in the bond market and more precisely in the rise in yields. Only now, and after months of upward trend, stock market investors are beginning to wake up to the potential detrimental effects that rising yields can cause. In a phase of high nervousness, any event can aggravate investors’ sentiment.

Once the first negative reaction is over, and in a purely technical and short-term perspective, it can not be excluded that stock markets can start a recovery. World stocks may be favored by the fact that yields have reached levels that are technically called overbought.

Just our of interest, your ratio of “Likes” to “Posts” is not great :wink:

  • Do you ever have a bet yourself ? :confused:

Normally, after a steep decline like the one observed in the previous sessions, markets tend to fluctuate quite volatile not only because the fall forces investors to restructure their portfolios but force them to reshape their outlook on the stock market situation. At this stage investors’ sensitivity to events and news is extreme, so their reaction to these factors could be somewhat exacerbated, thus contributing to the remain of high volatility.05072/141

Deutsche Bank has published an interesting study on how S&P reacted after the 10 biggest VIX rises. Thus, on average, the S&P appreciated 3.90% in the week following the occurrence of these increases. However, S & P lost an average of 0.40% in the following month and 2.60% in the following three months. Yesterday’s rise in sovereign interest rates is explained by the lower buyer interest that the 10-year bond auction raised among investors and the news that the two parties in Congress have reached an agreement to fund the American state with 300,000 M. USD over the next two years. This measure is expected to aggravate the US public deficit, thereby putting pressure on its yields. A further sharp rise in state interest rates would have a negative impact on equity markets. The second variable relates to the volatility and financial engineering products indexed to it. The third relates to fund withdrawals.

This point is particularly relevant as there is a relevant difference between the decisions taken by investors and decisions resulting from an automatic algorithm. Investors tend to assess market conditions before submitting their orders, so in the absence of purchases a number of these investors are likely to wait for market normalization. On the other hand, the automatic programs generally act solely and exclusively according to the algorithms with which they have been programmed that will be able to integrate the market conditions or not. As a result, many of these programs will be able to sell even when purchase orders are at much lower levels than the last quote.