In a context marked by the decisions of the central banks, it is important to monitor the intervention of Mario Draghi at a conference organized by the European Systemic Risk Board, over which he presides. It is not excluded that during his speech, Mario Draghi make nod to the European banking system situation and possibly the future of monetary policy in the eurozone. In the short term, European equities should continue to be influenced by the EU yields (which will be conditioned not only by the words of Mario Draghi as well as the development of their American and Japanese counterparts) and to a lesser extent by the behavior of oil. This raw material should take a more volatile pattern with the approach of OPEC’s meeting next week.
After the strong rise of the last two days, there is the question whether the “benevolent” decisions from the Fed and Japan’s central bank are sufficient to restore positive sentiment of European investors or whether these valuations require new catalysts. This rally itself can be self-sustaining, for some time, because in theory the fund managers have a high level of liquidity in their portfolios. However, this liquidity can be used to feed the redemption of specialized equity funds in Europe. In fact, the week ending on 21 represented the 33th consecutive week of redemptions by American savers. Just last week, were redeemed 571 M.USD in specialized equity funds in Europe. Possible catalysts for a rise in European equities would be a decrease in yields and an excellent earnings season from European companies.
After a week marked by meetings of central banks, global stock markets seem to have entered a new phase. In this new chapter, the central banks will continue to play an important role, but will have to share it with oil and with the intensification of the US election campaign. In this context, there has been a more cautious stance on the part of Asian investors, which resulted in some profit taking, from gains generated by the meetings of the Bank of Japan and the Fed.
Subsequent to this reaction to the presidential debate European investors will focus on the banking situation.
In a context of increased risk aversion, the yen is a refuge, so the Japanese currency has appreciated in the last two sessions, thereby penalizing the Nikkei and especially the export sector.
Before the financial committee of this institution, the Chairman of the Fed has taken a balanced and prudent approach. Janet Yellen said that there is no timetable for increases in interest rates despite several members of the Fed believe are necessary interest rate increases. So, in absence of any new risks and if economic conditions will remain it will be appropriate an increase interest rates.
Yesterday, although oil has managed to keep up the levels it had after the cartel’s decision announcement, American equities were shaken by the weakness of the financial sector.
The improved perception of global investors in relation to Deutsche Bank boosted Asian markets. In Japan, the Tankan report showed that the feeling of Nipponese industrial large remained unchanged in the 3rd quarter of this year.
Today, attention will be focused on the behavior of the shares of Deutsche Bank and the intervention of two members of the Fed, the Governors of the Federal Reserve of Richmond and Chicago.
Yesterday, the British stock market led the gains on a day the British Pound has considerably devaluated, reaching the minimum of the last 31 years.
To frame the session today (and perhaps also the near ones) is necessary to go back yesterday, when Bloomberg published an article on the ECB’s monetary policy. According to this article, the Central Bank was considering reducing its financial asset acquisition plan, and this reduction is called tampering. According to the report, the ECB would be to draft a plan to gradually decrease (possibly in steps of 10 000 M. €) its asset purchase program currently at 80 000 M. € / month. This program is scheduled to end in March 2017 and in the market there was the expectation that this period could be extended and possibly increased the amount. However, the intervention of Mario Draghi at the September meeting and some later interventions of a few members of the institution have shaken investors’ expectations.
The main even yesterday was the abrupt fall of the pound against the dollar (6%). A drop of 6% in the forex market is, in general terms, a drop of about 20% in a stock index. The reasons for this move are unclear but apparently are not of a fundamental nature and can be an error, of an automatic trading program that triggered a series of stops in a low liquidity environment.
The figures indicate that the expansion of the labor market remains intact although at a slower pace. Data confirm the improvements in the labor market indicated by the Fed at the last meeting and shall not constitute an obstacle to a rise in interest rates in December. Until this meeting will be published two employment reports. The Fed has scheduled a meeting in early November but should not take any decision before the presidential elections.
Today officially begins the Earnings Season with the presentation of Alcoa’s quarterly accounts. The earnings season starts today, but only in the next week is to gain greater intensity. In addition to Alcoa’s results will be published on Friday Citigroup accounts, JP Morgan and Wells Fargo.
The volatility of European and American markets remain close to the minimum of the year. However, it is unlikely that this exception will endure especially considering that October is statistically one of the volatile months.
The fact that the Shanghai Stock Exchange have valued can be explained by the fact that these signs of weakness can influence the Beijing authorities to adopt new measures to stimulate the economy.
The increase in inflation may be signaling some recovery in economic activity, particularly consumption. This fact mitigates the fears aroused by last fall in imports and exports.
The results of the banking sector, published on Friday, were entirely good and managed to alienate some fears caused by Alcoa and Ericsson. The President of the Fed argued that the central bank can tolerate a higher than desired inflation to ensure that the economic expansion continues to solidify. Today, the Vice President Stanley Fisher will be present at a conference organized by the Economic Club of New-York.
The appreciation of oil in the Asian session were due to the decline in the dollar and a study by Bernstein which indicated that the accumulation of world oil reserves decreased in the 3rd quarter of this year, reaching the lowest value since the last quarter of 2014.
Oil (quoted in New-York) continues to trade in a very volatile way but not descending significantly below 50 USD / barrel has been enough to give some support to its sector and more indirectly to the market as a whole. These good results overshadowed economic data, which seem to strengthen the arguments of those defending an increase in interest rates in December.