US markets ended with contained variations, managing to recover from early losses justified by the sharp fall in oil and the weakness of the US markets. The Dow Jones was losing 266 points and closed with a rise of 53 points. Oil price suffered a selling pressure, with investors showing their disappointment at the fact that Saudi Arabia eliminate the possibility of a cut in production and some skepticism regarding the freeze on production capacity to balance the relationship demand / supply . The session key moment occurred when the Department of Energy revealed that the oil reserves in the US rose by 3.5 million barrels last week compared to the envisaged increase of 2.42 million. However, the sharp drop in petrol stocks (-1.6 million barrels vs 0.73 M million) contributed to compensate the early fall. Additionally, the Association of American Railroads reported that crude oil transported through this route declined for the third consecutive week, confirming recent evidence that US oil production continues to decline, albeit slowly. Last year, in face of oil price fall, shale oil extraction companies adopted a series of measures in order to protect their business. These measures include the closure of oil wells with lower productivity, reduction in non-operating costs, renegotiation with banks of borrowing and the implementation of financial hedging strategies, which protect the oil price fall. However, at this stage, the potential of reducing costs both financial and non-operating is limited and the use of financial instruments for protection against a further drop of crude oil is very expensive. Thus, in recent months there has a closure of many oil fields, especially smaller ones.
An excellent trading week.
The forum is a great help.
Which you all a nice weekend.
At the macroeconomic level, household consumption increased to 0.50% in January, exceeding the forecast of 0.30%, supported by rising wages which boost household spending. The increase in house prices also contributed to an improvement in consumer confidence. The approach of the preferred measure of inflation from the Fed to 2% raised some concern in many investors but the money markets, which are an excellent barometer of the reference rates, assign a probability of 57% to a rise in interest rates in 2016. The US GDP for the 4th quarter was revised upwards from 0.70% to 1%, against economists’ forecasts of an increase of only 0.40%. In addition there has been a minor fall in investment and a decrease in the trade deficit. Domestic consumption, which represents 70% of the economy, was less dynamic than expected (2% vs 2.20%) due to lower sales (in value) of fuels (due to falling prices) and clothing as a result of mild weather in November and December. The trade deficit increased from 61500 M.USD in December to 62200 M.USD in January. This was the highest level since June. The confidence index of consumers, as measured by the University of Michigan, reached 91.7, above the first reading (90.7) but lower than the 92.0 recorded in January. From a technical point of view, today’s session and probably also tomorrow will be particularly relevant. If these days, the S & P can not be located convincingly above the zone of 1940/1950 then is increased the possibility of a short-term correction.
Stimulus boosted stock markets, emerging currencies and metals.
Main European indices such as the DAX and the CAC, broke their resistance zones, even before the S & P. With this move strengthened the probability of these indices to test new resistance (9900 in the DAX and the CAC in 4423/4466) in the coming days. One should notice that due to high volatility the occurrence of erratic movements in an underlying trend should occur frequently.
In recent weeks, the position of hedge funds has been changing. Until mid-February, these funds mainly held selling positions on oil, but in the last two weeks not only the pace of closure of these positions increased as some hedge funds began to get long on crude oil, which reinforced its upward movement.
At this stage, the money markets allocate a modest probability (63%) to a rise in interest rates in 2016, which has given some encouragement to equity indices. In conclusion, the ideal for the equity markets would be that the indicators describe an American economy far from precipitating a recession but not so dynamic to raise a sharp rise in interest rates.
American indices closed higher, as investors reacted positively to the employment report, which described a very dynamic labor market but that implies an increased risk of a rise in interest rates. The employment report allayed, at least temporarily, investors’ fears in relation to a US recession scenario. In February, the US economy generated 242,000 jobs, which add up over 30,000 resulting from the upward revision of the readings from December and January. The unemployment rate stood at 4.90%, recording no change facing January. Economists had anticipated the creation of 195,000 jobs and an unemployment rate of 4.90%. However wages fell 0.10% in February. In this context, where rising wages in recent months is interrupted, the decline recorded in February may lead the Fed to take more caution before raising rates. Another consequence of the employment report was that some economists began to revise upwards the estimates for the 1st quarter of this year. Generally, this period is the least dynamic of the year. According to the econometric model of the Fed Atlanta, US GDP is expected to grow 2.20% in the 1st quarter instead of the 1.90% previously estimated.
The most recent economic data in the US exclude the scenario of a recession in the country, so there is no risk of an abrupt descent. On the other hand, despite a flexure in the first months of the year, the European economy continues to grow, sustained by domestic demand, and fuel consumption shall not decrease.
Investors are positioning themselves for the realization of the ECB meeting tomorrow. This position will be seen in the stock market as well as in the currency and bond markets.
US markets closed with modest gains, which were mainly due to the rise in the oil sector, resulting from the sharp increase in crude price. The Department of Energy revealed that US oil reserves rose by 3.88 million barrels, a variation above 3.17 million estimated. After this increase, the American oil reserves reached the highest level since the decade of 30. However, for the 3rd consecutive week, gasoline stocks suffered a bending, this time of 4.52 million barrels (estimated – 1.49 million). To this information were added the statements of the Iraqi Minister of Petroleum who said OPEC members and other producers outside the cartel will meet in Moscow on 20 March. The other sectors did not experience significant changes, except the biotechnology companies which declined throughout the session, ending with a loss of 1.15%. Today, attention on Wall Street will focus on the reaction of European markets to the ECB meeting .
In the pre-opening, European shares showed some gains. The reason for this initial rise is justified by a technical reaction to yesterday’s falls and rising oil in the Asian session. The last session was particularly volatile, with the major indexes reaching gains between 2% and 3% before finishing with a devaluation of 1% to 2%, and it is worthy of a brief analysis. The reasons for yesterdays’ behavior in the European equity indexes are essentially two. The first relates to the fact that the ECB did not have introduced a system of different interest rates to liquidity that banks hold with that institution. Negative interest rates penalize the profitability of banks, as these can not compensate for the negative rates of their deposits with a decrease in the interest rate on deposits of their clients. The ECB could have differentiated what is a necessary or prudential liquidity of excess liquidity by applying them to different interest rates. The adoption of such a measure could mitigate the negative effects on the banking sector of a further reduction in interest rates on deposits. The adoption of negative interest rates on deposits have been one of the causes of strong underperformance of the banking sector in recent months. The second reason was the reaction of the euro. The European currency had the widest intra-day variation of this year, ranging between 1.0822 and 1.1116 in just over 30 minutes and later reaching 1.1217. The rise of the European currency is perhaps explained by the fact that in the forex market all measures taken by the ECB (with the exception of the reference rate descent) had already been anticipated by investors. In addition, in the lines of his speech, Mario Draghi has indicted that the potential decline in interest rates is from yesterday onward, quite limited.
US markets closed with fairly sharp gains, thus achieving the 4th positive consecutive week. The reasons for the positive trend are several. The main reason for this last rally will be due to the perception that the risks of the US economy into recession are minimal. After an early uncertain year marked not only by the turbulence of the financial markets and the slowdown of the economy, economic indicators for February showed a very dynamic activity. The latest and most striking evidence was the employment report, released on 4 March that signaled a very dynamic labor market, with the economy approaching full employment. The second reason is due to the resilience of oil price, which recovered about 35% from the minimum of the year. Another factor that has contributed to the Wall Street rally is the need for many institutional investors to monitor the rise in their benchmarks. Furthermore, last week for the first time this year, subscriptions of equity funds were greater than redemptions, which provides more liquidity to fund managers apply to the equity market. Perhaps the only catalyst which is confined only to the Friday session was the reversal of the sense of European investors to the decisions of the ECB. Because of the change of time in the US, trading in the US stock market will start today at 13h30 and will end at 20h00 (GMT). Only on 28 March US markets will resume to normal trading hours (14h30-21h00 GMT).
Investors began to position themselves for the meeting of the Fed, which starts today and ends tomorrow.
The expectation of today’s meeting of the Fed dominated the Asian session. In fact, there has been a decrease in the volume and volatility, and most investors adopted a defensive stance, which explains the decrease of some stock exchanges such as the Japanese and Hong Kong.
Among the many positive consequences of the meeting of the Fed stood a particularly negative for European markets: the appreciation of the Euro. This effect should penalize, in time, the European export sector. Among the most correlated with the Euro figure index DAX.
Today, as in Europe, will expire futures contracts and options called quadruple witching. Quadruple witching days are usually accompanied by considerable volatility in stock and derivative prices, as well as increased trading volume, with the occurrence of erratic movements. The most most volatile time of day shall be 13h30 (open) and 18h00. Statistically, the sessions of quadruple witching are positive for the equity markets.
The rally performed by the price of oil in recent days continued to support the stock market. In fact, this upward trend of oil not only boosted the energy sector as well as the financial sector since eased some fears that have been hovering in the market regarding the impact of the growing number of oil companies bankruptcies in banks.
The view of the members of the Fed in face of external economic and financial environment is now seen as less optimistic.
US markets were also affected by the Attacks in Brussels, and the stock market indices reflected all the concerns surrounding this issue of geopolitical nature. Thus, initially the market was penalized by these events, with a clear preference for defensive sectors as opposed to riskier assets. However, and as in Europe, gradually this feeling was being absorbed, with the indexes recovering ground. The stock indices were pressured by financial stocks and cyclical consumer companies. Yesterday, the fears regarding the effects of negative interest rates in Europe and low interest rates in the US in bank balance sheets influenced, once again, the behavior of the titles of major financial institutions. Moreover, to aggravate the pessimism of investors was the decline in Crude prices after the recent trend of a strong correlation between this raw material and oil prices. The price of oil declined from the maximum achieved after the data for this industry have revealed that US crude inventories rose more than expected. Still, the price of this raw material have managed to maintain some support before the return of some risk appetite. Today will be published by the Energy Information Administration’s the inventories of oil and gasoline. At the macroeconomic level, the PMI index for the manufacturing sector improved slightly, from 51.3 in February (the minimum of the last 28 months) to 51.4 in March. The dollar, which was initially pressed by the reaction to the terrorist attacks in Brussels recovered subsequently, boosted by rising yields on sovereign bonds, after the President of the Federal Reserve Bank of Chicago, Charles Evans, has said he expects two more increases in interest rates this year, based on the current economic outlook.