Market View; World Stock Indexes & Trading Journal - page 10
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Market European session today was essentially marked by the reaction of investors to the publication of the PMI indices (Purchasing Managers Index) concerning the Eurozone. The reading on the manufacturing industry was a positive surprise.
Banking shares traded volatile as investors position themselves before the publication of the results of stress tests of the ECB. These results have been preceded by many rumors but some Italian and Greek banks may not pass.The news of a new case of Ebola in the USA increases the negative psychological impact, which may penalize the airlines.American markets remain high and the main drivers were the good results of some relevant companies.
Yesterday, the results of the stress tests, prepared by EBA (European regulator of the banking sector) in cooperation with the ECB and the AQR program were disclosed.The AQR (Asset Quality Review), the responsibility of the ECB consists of a review of asset quality and ability to absorb losses. 123 European banks were submitted to stress tests and 130 European banks to the AQR program. The stress tests are a series of simulations of how certain scenarios would have an impact on the level of European capital position, the risk sensitivity and exposure to sovereign debt banks.
Yesterday, Crude Oil listed in New York, reached the minimum of the last two years (Prices fell below 80 USD a barrel). The supply / demand ratio has been destabilized by increased production in the US and the decline in demand for crude because of the slowdown in many economies. For the oil sector, the fall of oil prices to below 80 USD affect the profitability but also the sustainability. According to some analysts, shale oil production price lies for some oil companies between 70 USD and 80 USD a barrel, so if crude continues down these companies will start to make losses. The additional problem is that the shale oil industry has been one of the biggest job creators in the US in recent years.
European markets experienced a significant recovery yesterday. The recovery of the European Indexes was related with the perception that European companies have achieved good results.US markets were driven by good business results on both sides of the Atlantic. Despite all the fears about the global economy, US companies are daring to record better earnings season this year. In fact, from the 208 companies in the SP500 that have reported their accounts 72% beat forecasts. Economic data, including a breakdown of durable goods orders, the lowest growth in house prices and the rise in consumer confidence had a limited impact on the session.The FED meeting will be the main event of day as well of the week. The agenda include the program of debt acquisition and the outlook for the interest rates.
At the beginning of today’s session in Europe markets started the session slightly higher to reverse within the first hour of trading. Investors react to the announcement of the Fed’s meeting yesterday and to the results published this morning.
The US markets closed yesterday without major fluctuations. The Fed meeting was the main event of the day and caught little enthusiasm that had come to cheer investors in previous days.
The Federal Reserve’s decided to end its asset-purchase program, which had begun in September 2012 and which was one of the drivers of the equity markets during this period. According to a release, the interest rates will remain at low levels for “an extended period of time.”
The European markets started the session with sharp gains. The catalyst for the initial rise is the unexpected decision by the Bank of Japan, which increased its annual program of debt acquisition from 590 000 M USD to 726 000 M USD.While the Fed’s monetary policy has been the main driver of equity markets, the Bank of Japan also starred in an important role in creating liquidity. At a time when the Fed and the Bank of England are starting to reverse the course of their monetary policy, the decision of the Bank of Japan is an important step to counter the decrease in liquidity generated by those two institutions.The final reading of inflation in the Euro Zone will be released today. Economists estimate that inflation has recorded in October grew 0.40%. Although the effects of the ECB’s measures has only impact on the level of prices in the coming months, if inflation is lower than estimated, it may have a negative impact on investor sentiment.US markets were boosted by corporate earnings, positive reading of GDP and operations related to the end of the financial year of some institutions.The US economy benefited from rising exports and a sharp drop in imports, particularly oil, which was explained by the increasing crude oil production in the country. Moreover, the huge increase in military spending boosted public spending and affected GDP by reflex.US indexes were also positively influenced by the fact that yesterday (just like today) represent the end of the financial year to several investment funds and pension funds. Generally, these periods are positive for stock markets.
European markets trade with no major fluctuations, the first hour of trading was influenced by the worrying PMI reading in China and the pressure on the oil in the international markets.The publication of the final PMI readings relative to the major European economies and the Eurozone as a whole, did not alter the initial market behavior that is taking a small break from the strong rebound.As mentioned in the previous post, the US markets exchanges at 52 Week Highs and were recently driven by the decision of the Bank of Japan. In addition to this decision, another important measure was the announcement that the State Pension Fund will increase their exposure to equity markets for 50% of its assets. This Pension Fund is the largest in the world and manages approximately 1.15 million M. USD. The Fund will allocate 35% of its assets to Japanese bonds, 15% to bonds of other countries, 25% in Japanese stocks and 25% to international equities. With these two events, investors expect some of the liquidity generated by the Bank of Japan, as a part of the financial availability of the State Pension Fund are channeled into US stocks, thereby offsetting the reduced liquidity that will characterize the near future, as consequence of the reversal of the Fed monetary policy.
The stock market traded under selling pressure and the fall in oil prices, which hit a new low today, weighs not only on its sector, but also on the general market.
The earning season continues in Europe, and companies have reported this morning corresponding to the positive pattern observed so far.
The European Commission, under the chairmanship of Jean-Claude Juncker, has lowered its economic projections, given the slowdown in the Eurozone.
European markets trade with gains, reflecting the positive reaction to the US mid-term elections. However, there is a risk of this effect is not lasting. At this stage, the behavior of oil prices and the ECB meeting tomorrow assume greater importance.
In the US, the ADP report, which measures job creation in the private sector, caused some volatility but its impact on the course of the session should be limited to the extent that this indicator is not a very reliable barometer of NFP employment report that will be published on Friday. The first indications of the midterm elections point to a confirmation of the Republicans control the House of Representatives. The victory of the Republicans should favor oil sectors, pharmaceutical and defense industry.