The US markets closed with modest gains, which did not prevent the week from coming out with a negative change. The day was marked by the absence of news or tweets regarding the future steps of the Trump Administration concerning its customs policy. As such, investors were focused on the operations related to the maturity of futures and options, called the quadruple witching. In addition to this maturity, investors followed the publication of economic data that pointed to a slowdown in the real estate market (7% decrease in the beginning of home construction), although industrial production and consumer sentiment confirmed the current phase of expansion of economy. Despite all the uncertainty and turbulence of the current economic climate, American savers seem to have returned with enthusiasm to stock markets. In the week ending March 14, American savers subscribed a total of 43,300 M.USD in shareholder funds. The large portion of this amount was channeled to US equity funds (34600 M. €), followed by Japanese stock funds (around 4000 M.USD) and specialized funds in emerging markets (3500 M.USD). The subscription of European stockholder funds was insignificant.
European stocks may be vulnerable to a reversal of this positive initial trend. One of the standards that has emerged in 2018 is the underperformance of European markets vis-à-vis the Americans. Since the beginning of the year, the Eurostoxx50 lost 3.12% while the S&P500 appreciated 1.47% (and the Nasdaq100 7.32%). As a consequence of this trend and to reinforce it, the position of hedge funds has been in place. According to Reuters, the amount of short sales on European stocks amounts to 188,000 M.USD, one of the highest levels since the sovereign debt crisis in Europe.
After an uncertain start, the indices of the Old Continent began a slight downward trend that lasted until the last hour of trading, when a brief rally led them back to the opening levels. One of the vulnerabilities of European markets today was the banking sector. The epicenter of the weakness of this sector was the Italian banks. On the positive side, the oil sector stood out, reflecting the rise in oil prices. Crude was picking up on rumors that President Trump and Saudi Hereditary Crown Prince were studying a way to counter Iran’s expansion into the Middle East.
Two of the factors that conditioned the European session, including the specter of a world-wide trade war and the effects of the FED meeting, were also putting pressure on US stocks. Another factor that was causing some nervousness among American markets was the weakness of the so-called FAANG (Facebook, Apple, Amazon, Netflix and Google) that was spreading to the rest of the market.
European markets again ended the session with significant losses. President Trump’s decision to impose customs duties on Chinese imports has revived fears about a global trade war. These fears have translated into a strong aversion to risk that has affected not only stocks (especially the more cyclical and the more export oriented) but also oil and industrial commodities. On the other hand, assets refuge such as state bonds, Swiss franc and gold appreciated.
Mitigating concerns about a possible trade war favored the US market earlier this week. Microsoft was up about 6 percent after Morgan Stanley raised its target price for the company, noting that the software company’s market capitalization reach $ 1 billion with the growing adoption by cloud customers, as well as improved margins.
The performance of the yields is relevant, since in the last two weeks, together with the specter of a trade war between the US and China, has explained the fragility of the European banking sector.
In European opening, stocks are trading lower, influenced by the reversal of the US market trend in yesterday’s session. The technology sector should be the focus of attention, since in Wall Street it was the main reason for the downward behavior of the market. Rise concerns about tighter control in this industry, following the news about Facebook. Other companies to attract attention should be the mining companies, after the negative behavior of the sector in Asian markets.
The recent risk aversion of investors has manifested itself through the purchase of bonds, which has led yields to retreat sharply. This move has led many fund managers to buy utilities and sell bank shares (more related to business cycles and a positive correlation with interest rates. In fact, as of 15 March, DJ Stoxx Utilities has appreciated 2.13% vs. DJ Stoxx Banks’ 3.96% decline Now, from a technical point of view, as the yield drop reached extreme levels and with German yields testing the 0.50% support, they increase the likelihood of a recovery in yields. sovereign interest rates, ie a devaluation of State bonds.
The close of the session on the last business day of the week was positive for European stock exchanges and for most sectors in a week marked by the easing of tensions between the US and its trading partners but also by the selling pressure that plagued the technology sector . The automakers were among the best performers, influenced by the good performance of Renault, fruit of the news of a possible merger with Nissan. The technological companies, which in recent days have been in the spotlight, presented a gain around 0.50%. Also noteworthy for producers of raw materials that recovered from the losses recorded in the session on Wednesday.
One of my favorite Quotes from Paul Tudor Jones:
“Don’t be a hero. Don’t have an ego. Always question yourself and your ability. Don’t ever feel that you are very good. The second you do, you are dead.”
Shares of Tesla’s fell as much as 6% after its founder, Elon Musk, said that the company had gone bankrupt (making light of the car maker’s troubles in April 1 Twitter prank).
China has announced additional tariffs on more than 106 products imported from the US, less than twenty-four hours after President Trump presented a list of Chinese products to which he proposes to apply aggravated customs duties (about 1300 products from different sectors such as aeronautics, information and communication technologies or even robotics and machines). The number of products is lower than the list of 1300 goods presented by the US, but its value is intended to be identical, that is, 50,000 M.USD. Recalling that China had already promised to retaliate with the “same force” to the announced intention of the US to increase its customs duties on Chinese products. These news had a negative impact on several sectors of activity, but more strongly on technology companies.
The reversal of the trend of the New York session should support European stocks. European shares are more likely to reverse the underperformance phase compared to their US counterparts, a trend that has marked the last few months. The evolution of the Euro is one of the variables that can accelerate this inversion. The exchange rate issue is gaining momentum at the present stage. At a time when there is a fear of a trade war, the competitiveness of the various economies becomes crucial.
Markets are increasingly beginning to interpret the actions of the President not as a final goal, but as a means of reaching an agreement with China in favor of the US. It is important to remember that Donald Trump was an author of a bestseller entitled “The Art of Negotiating” where he advocates strategies very similar to those adopted as President. In this context of tension between the US and China, the best market barometer is the DAX index. The German index is the one with a greater weight of exporting companies and Germany is the European country with the largest exposure to the Chinese economy.
These advances and withdrawals from the Trump Presidency in relation to world trade and its customs policy seem to fit on the theory that it is a well-organized negotiating strategy under cover of a false immediacy.
At the Forum for Asia, held in Boao, China, President Xi Jinping said that one of the main lines of his country’s economic policy is to open the economy abroad. To that end, Xi Jinping argued that to achieve this goal, China must significantly lower its import tariffs (especially those on automobiles), protect the intellectual property of foreign companies and improve the environment in which these companies operate in China. The Chinese President stated that his country intends to increase imports and that it does not seek a constant trade surplus with other nations. The words of the Chinese President are striking, as they meet the intentions of President Trump.
European markets closed lower, with investors turning their attention to business results. In sectoral terms, the majority ended in a downturn, with leisure-related companies leading the losses. On the contrary, the telecommunications sector was among the few to close on high. With a relative overperformance also closed the retail sector, on the day the results of the British Tesco and the French group Carrefour were known. Tesco rose 7.18%, after mentioned it will distribute an annual dividend for the first time in 4 years.
The exchange of tweets between President Trump and some Russian officials in relation to Syria opened a new front in the stock markets. This increased tension between the two countries began with the imposition of new economic sanctions on Russia by the US and has essentially penalized the Moscow and Ruble bourses. At the present stage, it can not be excluded that it can reach the European sectors most exposed to this country, namely drinks, luxury goods and the automobile.
Hello
Has anyone else been getting sudden unusual spike in spreads on DAX30 and SP500 for a few minutes 2-3 times during the day…
I have been getting these since before we went for the good friday weekend…sometimes upto 11-14 pips as well…
Been unable to find an explanation on this…