Dax30, Ftse100, SP500, Market View

The European stock markets started the session with slight gains. The beginning of today’s session was influenced by some corporate results. Briefly, Roche reported lower annual results to estimates and the proposed dividend (8 CHF) was also lower than the market anticipated. The Swedish retail chain H & M reported higher quarterly results than expected and was confident in relation to the January sales. The European technology sector should respond positively to Apple’s results. The American company is an important customer of several European companies, such as the English ARM. At the end of the session, it is not excluded a decline in trading volume, reflecting the expectations of investors in relation to the meeting of the FED.

The Fed kept the outline of the statement of December. The central bank reiterated that it will continue to adopt a “patient” posture with regard to the standardization process of monetary policy and thus, if all factors remain unchanged, interest rates should not be increased in future meetings. Regarding inflation, the statement said that the increase in the price level has fallen and that this trend will intensify in the short term but in a broader time horizon prices are expected to increase at a faster pace, due to the improvement of labor market and decreasing temporary effects of oil fall. The FED withdrew the words “for an extended period of time” when it ruled on the maintenance of low interest rates. Another change from the December statement relates to the assessment of the economy. The FED believes that the US economy is growing at a “solid” pace instead of “moderate” as mentioned in the previous statement. Contrary to what occurred at the December meeting, the statement was approved unanimously, although it is important to note that recently the Central Bank Committee had some changes, with new members more conducive to an accommodative monetary policy than their predecessors. This event has generated an upward movement of the indexes for a few minutes before investors focus on the price of crude. Oil traded again under pressure after the US Department of Energy has reported that US oil reserves increased 8.84 million barrels last week more than 4.3 million barrels anticipated by economists. With this change, US crude oil reserves reached the highest level since 1982, when it began to be recorded in a systematic way. The crude oil price fall caused a selling pressure on the oil sector, which quickly spread to other sectors. In this harmful effect of oil joins the strength of the dollar, which penalizes revenues of US companies held in foreign markets (which represent about 30% of the total). These factors have raised the concern of investors. The worrying signs of coming earnings season are clearly evident in the good results from Apple. About 120 companies in the S&P500 have reported their quarterly accounts, generating an increase of 8,000 M. USD in profits over the previous year. From the total increase of 8000 M.USD, 5000 M.USD were generated by Apple.

The US economy expanded at a slower pace than expected in the fourth quarter with the slowdown in corporate investment. A fall in government spending and a trade deficit growing took shine to greater gains in consumer spending over the past nine years. Gross domestic product grew at an annualized rate of 2.6%, after a 5% gain in the third quarter, which was the highest level since 2003. The estimate of economists pointed to 3%. Although the American economy is the most dynamic among the main economic regions of the world, some factors have weighed on US actions. One such factor is the strength of the dollar which reduces the competitiveness of US companies as well as the amount of revenue they generate in foreign markets. The companies in the SP500 have a very broad geographic exposure, making them sensitive to this factor. The second factor has to do with monetary policy. Although the FED proves “patient” (in the words of the central bank itself) in relation to rising interest rates, investors know that the trend is for monetary policy to be less accommodating in future. This trend contrasts with that observed in other economic areas such as Japan and Europe. Perhaps this is the most important factor to the extent that monetary policy the Fed was the main catalyst for the bull market started in 2009.

China’s PMI index on manufacturing activity fell in January to 49.8, below the 50.0, thus signaling an industry in a contraction phase.

If the appreciation of the dollar has had a negative impact on profits and revenues of US multinationals, the weakness of the Euro should have benefited European companies. The devaluation of the Euro not only increases the competitiveness of European companies and increases the amount of revenue generated there. The big question is whether the positive effect of Euro worth the still fragile domestic demand in the euro area and the economic slowdown in various parts of the globe.

One of today’s session topics will be the recent rise in oil. The oil recovery is based on several factors, from fundamental and technical nature. In recent weeks, there have been several indications that the offer is to adjust to new market conditions. Several oil companies in the presentation of results have reported that will reduce investment in the coming years, which will reduce the production along the time. Another sign was given by the CEO of BP who said that the production of shale oil (extracted oil shales surface) in the US has experienced a sharp drop, and closed dozens of wells every week in states like Texas, the Dakota North, etc. The production of oil shale in the US was the main cause of increased oil supply in the last 3 years. From the technical point of view, a very common strategy among hedge funds in recent months has been selling futures on oil. This type of strategy has been so popular that the level of sellers headings (speculative) reached the maximum in recent years. These investors may be tempted to close their selling positions to a minimum oil sign of strength, materializing the gains achieved with the downward movement of crude oil. The rise in crude should continue to boost the related sector but also affects many other raw materials. Because oil is one of the most traded commodities, their movements influence the price of copper, aluminum, zinc, etc. Thus, the mining sector could also stand out in the early hours of the session. The value of crude oil and the recovery of the Euro may generate an underperformance of the DAX. The reason for this possibility relates to the fact that the German index, one of the best performers this year, doesn’t have any oil company among its members, and a significant portion of its constituents have a high export exposure and thus a negative correlation with the Euro.

Today the ECB published its newsletter, which is no longer monthly and went on to be released every 6 weeks, which describes in detail the Euro Zone Economy. The European Commission (EC) predicted growth for all EU countries in 2015 for the first time since 2007. The EC raised its forecast from 1.1% to 1.3% of GDP for the year 2015, and from 1 , 7% to 1.9% in 2016. the commission said the growth was 0.8% last year. The unemployment rate is expected to fall from 11.3% to 11.2%. In regard to inflation, the EC predicted that consumer prices come down 0.1% this year, after an increase of 0.4% in 2014, but predicted to grow 1.3% in 2016.

Yesterday American indexes closed high, having been influenced by the same factors that marked the previous session: the evolution of oil and business news. The merger and acquisition news continues to animate Wall Street. The shares of Pfizer appreciated after the company announced its intention to acquire Hospira company specializing in the manufacture of biosimilars. Weekly applications for unemployment benefits last week amounted to 278,000, less than the 290,000 estimated. In the last two weeks, this indicator reached levels close to the minimum of the last 15 years. On the other hand, the trade deficit rose unexpectedly in December to its highest level since November 2012 (46 600 M.USD) due to the increase in vehicle imports and a decline in exports. In recent days have been disclosed some economic data pointing to a slowdown in the US economy. These signs have disturbing contours considering the large number of areas of the globe which cross a delicate economic phase. These less solid economic data shook the oasis of status that the US enjoyed until a few days ago. The employment report comes somewhat alleviate the negativity of the latest data, as announced the creation of 257,000 jobs, exceeding the 230,000 estimated by analysts, which corresponds to an above-average number of 2014 (240,000) and stock indexes should react positively.

Presidents’ Day, is a federal holiday held on the third Monday of February and the US markets will be closed. Since 1990, the SP500 closed on the eve of this holiday downwards by 81% of the time.

Price is King!

We should realize that the initial analysis is only a starting point for moving in the right direction. From there, it’s really a matter of seeing what the market is willing to give. The truth is the price level at which negotiates an asset in the given moment, regardless of what we would like to see.

Trend following!

People feel most comfortable in a congestion or a consolidation area, but this may be the most dangerous place to be. So it would be logical to conclude that trading outside the comfort zone shall be the safest and correct one.

Today’s meeting of the Eurogroup assumes crucial importance, after the impasse lived at the meeting last week. The ceasefire agreed in Minsk took effect yesterday, so the next few weeks the financial markets will observe its implementation. The molds of this ceasefire resemble the agreed in September 2014 and it is recalled that in the days that followed this agreement financial markets were quite sensitive to any rumors or news from that area. The movement of European stock markets should only be conditioned by news and events in Europe and the Asian markets, since today the US market will be closed.

Today the SP 500 Index broke 2,100, reaching a record for a second day on speculation that the Greek debt impasse is easing while oil prices erased earlier declines.

The Eurogroup assigned a period (ending on Friday) for Greece to accept the extension of the assistance program for 6 months. Thus, the market will continue sensitive to any news or rumor on this topic, which may result in the occurrence of sudden and abrupt movements.

Despite the latent threats, the oil fall, the fall of the euro, the ECB’s decision to apply the quantitative easing program in the Eurozone and the allocation of global investors are critical factors that have contributed to the good performance of European markets. European economies are the main beneficiaries of the oil price fall (reduces production costs and increases the disposable income of consumers) and euro devaluation (improves competitiveness in foreign markets for European companies). To help is also the good results (in relative terms) of European companies.

Early in the morning, the stock markets traded without major fluctuations. After Greece submitted a proposal to extend the loan received, the Eurogroup will meet to discuss the proposal. Initially the meet was to be done by video conference, but will now be held a meeting in Brussels, which may favor an understanding. The news that the various statements made clear yesterday, the Greek proposal merited the opening of some countries and the European Commission itself but also skepticism in Germany and other countries like Finland and Austria. Although the deadline given by the Euro-group formally end today, it can not be excluded, in case of not reaching an agreement, extended talks along the weekend. In this context, the publication of the preliminary reading of the PMI indexes (purchasing managers index) has less importance than usual. It was anticipated a slight improvement on previous months due to already be reflected in the European economy the effects of the devaluation of the Euro, the fuel price fall and monetary environment even more beneficial, however the PMI values ​​came out lower than expected.

The Wall Street behavior will depend on developments in Europe, knowing that when the stock market indexes hit new highs usually attract retail investors interest.

The Nasdaq was able to record the ninth consecutive session in positive territory. The technological index continues to benefit from investors’ preference for more cyclical companies and the optimal performance of Apple. The macroeconomic issues will take center stage over the coming days.

In addition to the macroeconomic and political focus, the earnings season continues to attract attention, but today we have an event that could bring some volatility because at 16h30, Mario Draghi will be present in the European Parliament, where he will present the ECB’s Annual Report .

Asian markets closed higher, highlighting the sharp rise in the Nikkei, which continues to reach new highs of the last 8 years. Boosting Japanese stocks were essentially the depreciation of the yen and expectations that the Central Bank of China may announce new monetary stimulus.