US indexes closed higher at a session in which the situation in Syria and relations between Russia and the US dominated investors’ attention. As has happened in recent weeks was a tweet from President Trump that dictated the course of the American indices. After Syria’s most bellicose tweet on Syria and Russia’s ability to wage an American attack, the American President has always stated through his preferred means of communication that he has never advanced when an attack on Syria will occur. Uncertainty in financial markets remains high, resulting in greater volatility and a move away from more conservative investors. The valuation of bank shares was another catalyst for yesterday’s rally. The earnings season officially kicks off today and coincides with the debut of the banking sector earnings season. Today, quarterly accounts of Wells Fargo, Citigroup and JP Morgan will be published. The rise in yields, the dynamism of the labor market and the economy as a whole, as well as the decline in the tax rate, create a favorable environment for US banks.
The sharp reversal of the financial sector’s trend, last friday, can be explained by the fact that the good results of some of its members could have been anticipated by the increases that their stocks achieved in previous sessions.
European markets closed higher, having been helped in part by the positive trend seen on Wall Street. Producers of raw materials have distinguished themselves by being among the best performers, as it is a sector very exposed to China and today favorable data on this economy have been known. In the first quarter, the GDP of this country grew 6.80%, marginally exceeding the forecasts of 6.70%. In addition, retail sales increased by 10.10% in March (vs. 9.70% est.) And industrial production by 6% (vs 6.30% est.). In the first quarter, investment in fixed assets rose 7.50%. On the contrary, companies related to household items were penalized by the fact that Credit Suisse reduced its recommendation from ‘neutral’ to ‘underperformance’. On the macroeconomic level, the Zew sentiment index for German financial agents fell for the third consecutive month to -8.2, the lowest level since November 2012.
The oil companies were among the best performers. Total rose more than 1.50% after agreeing to buy competitor Direct Energie, an operation valued at 1400 M. €.
The closing of European markets in today’s session was not uniform in terms of stock exchanges and sectors of activity, although with contained fluctuations. Business results remained the theme of the day.
In macroeconomic terms, the number of weekly applications for unemployment benefits reached 232 000, more than the expected 230 000. On the other hand, the Philadelphia Fed’s economic activity index stood at 23.2 in April, above the estimated 20.0, while the advanced economic indicators for March registered an evolution of 0.30%, a behavior in line with the expected.
The price of oil was reversed in today’s session, influenced by the tweet of US President Donald Trump, who says that OPEC kept prices “artificially very high” and “would not accept it.” The major oil companies ended today’s session with slight losses.
Dollar rises overnight, 10-year yield holds close to 2.97%
Stocks nosedived today (Tuesday), with the Dow Jones industrial average sinking 600 points at session lows.
As expected, the ECB kept interest rates unchanged as well as the stimulus policy to the economy covering the monthly purchase program of 30,000 M.€ in assets up to September. At the press conference after the meeting, Mario Draghi confirmed that the European economy is undergoing a more moderate growth period, although it remains consistent with a solid expansion phase. Regarding inflation, Draghi mentioned that the ECB’s board of governors remains confident that inflation will converge towards the monetary authority’s target (inflation next but below 2%).
European markets were up on the last day of the week. As in the US, the highlight is for the technology sector.
In terms of economic indicators, consumption-related inflation, the measure most considered by the Fed, stood at 1.90% in March, compared to the same month last year, which puts it at highest level of the last 17 months. In the same month, household income increased 0.30% (vs. 0.40% estimated) and expenses grew 0.40% (vs.
The dollar had its biggest advance in more than a week.
Federal Reserve relaxed toward inflation rising above 2 percent signaling no intention to accelerate a gradual tightening of monetary policy.
FED should raise benchmark rates in June.
In terms of economic indicators, the number of weekly applications for unemployment benefits stood at 211,000, compared to 225 000 and then 209 000 in the previous week. The ISM index for the services sector stood at 56.80 compared to the projected 58.00 and the trade deficit reached 49 000 M.USD, below the expected 50 000 M.USD. Factory orders increased 1.60% in March (vs. 1.40% estimated), while orders for durable goods grew 2.60% in the same month.
Wall Street was trading higher as investors reacted to the employment report, highlighting Apple’s shares favoring stock indexes. The government reported that during April, the US economy created 164,000 jobs, down from 192,000 expected by economists. On the other hand, the increase in average hourly wages also fell short of expectations (0.15% vs. 0.20%). We must remember the importance of this last indicator, since in many economic cycles are the precursors of inflation. The US unemployment rate fell from 4.10% to 3.90% in April, down from 4%. In the business field, Apple rose 3.42%, after investor Warren Buffett revealed that during the first quarter acquired 75 million shares.
European markets closed mostly, rising, favored by the weakness of the Euro. The weakness of the European currency has led it to trade at 1.19 against the Dollar, a level not recorded since December 2017. To justify the weakness of the common currency, there is the significant difference between US and German yields and the recent slowdown in the European Economy. In March, orders to industry decreased by 0.90% (on a monthly basis), compared to forecasts of 0.50%. In the first quarter, the German economy was negatively conditioned by factors such as bad weather and a series of strikes that marked that period. During the day, the mining and oil sectors stood out. Crude oil prices gained more than 1% as a result of retracement of the Dollar and the indications that President Trump would be inclined to impose sanctions again not only on Iran but on Venezuela.
Technical traders operate on different time scales, producing detectable signals in price time series, subsequently memory effects are introduced in the price dynamics through a specific figure called supports and resistances. In fact prices more likely re-bounce than cross these values.
This recent positive trend US indices is explained by the strong appreciation of the oil sector, as a result of President Trump’s decision to abandon the agreement with Iran.
European markets closed slightly higher. The telecommunications sector presented an underperformance, explained by news and results. BT reported quarterly results lower than expected and announced its intention to reduce 13,000 jobs. Its shares fell 7.15%. In the banking sector, Royal Bank of Scotland advanced 3.88%, after agreeing to pay a fine of 4900 M.USD, an amount lower than expected, to close an issue related to the sale of financial products linked to high risk mortgage.
Recently, the evolution of yields has also been influenced by a new variable: the political situation in Italy. Debt markets, after several weeks focused on other issues, have already begun to react. Italian 10-year yields reached 1.94% (the highest of the last 7 weeks) and the differential between Italian interest rates and their German counterparts (the best indicator for measuring the country’s political risk) widened from 1.14% up to 1.37% in just two weeks. FTSEMIB, the Milan stock exchange index, has not yet reflected this perceived risk of the bond market. Stock market investors have focused more on the positive effects than rising yields will have on bank results. The increase in yields may be due to the prospects of higher economic growth (which is positive in the bottom) but may also be due to increased risk aversion. In the current situation, it is this last hypothesis that explains better the movement of Italian yields.