Market View; World Stock Indexes & Trading Journal - page 23
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The situation in Greece will continue to be a source of volatility. Yesterday when it was reported that Prime Minister Alexis Tsipras had carried out a reshuffle of the team is in talks with Brussels Group (IMF / EU / ECB) European markets reversed the initial negative trend, recovering about 1% in less than one hour. Even the Greek yields suffering an increase (because of the Eurogroup meeting outcome) reversed this pattern, ending the day lower. The government in Athens announced that the coordination of negotiations will be delivered to number two in the Ministry of Foreign Affairs, Euclid Tsakalotos. In diplomatic circles, Tsakalotos, an economist with a PhD at Oxford, is considered more conciliatory and more flexible than the Minister of Finance Varoufakis.
The decline of the dollar against the euro after a report that showed the U.S. economy barely expanded in the first quarter induced European stocks to tumble the most since December.
The EURUSD broke the last month consolidation range (1.05-1.105), favored by weak growth in the US economy. The devaluation of the Euro had been a major catalyst which drove the rally of the European markets. Technically, the movement of the Euro yesterday is positive for the European currency, can not be excluded additional short-term gains. If this materializes, should assist to an overperformance of the mining and petroleum sectors (the fall of the dollar benefits commodities), while the more cyclical sectors and exporters (automotive, industrial, etc.) should register a underperformance. In terms of indexes, the DAX is the most vulnerable to appreciation of the Euro, and the FTSE100 (English index) the most favored by rising commodities. However, come news that negotiations between Greece and its European partners may have accelerated due to increased intervention of the Prime Minister Tsipras, with the possibility to be reached a pre-agreement by Sunday, which is subsequently submitted to the meeting of the Eurogroup on 11 May.
Greece and its creditors remain apart on key elements of the country’s bailout agenda even as they work to bridge differences in a bid to avert a default as early as this month.
European equities are technically rebounding from last week losses. The volume of the session should be lower due to the holiday in the London Stock Exchange. The evolution of the Euro will be guiding European equity markets. Last week, the strong appreciation of the Euro was the strongest reason for the fall of the main European indexes. The devaluation of the European currency was in the last 12 months, one of the main drivers of the sharp appreciation of European equities. The injection of liquidity by the ECB further strengthened this downward trend of the euro, benefiting European exporters. A popular strategy among global investors is buying dollars and selling other currencies including the Euro. This strategy despite fruitful has attracted too many investors, which poses some risks. Thus, if the recent appreciation of the Euro endure, many of these investors may decide to simultaneously close this strategy, reinforcing the positive trend the common currency. If this scenario materializes, may intensify the selling pressure on European indexes.
European stocks are advancing for a second day as companies including UBS Group AG and Adidas AG posted better-than-estimated results. The situation in Greece as well as the British election, are the main unknowns at this stage. However, a European Commission spokesman said yesterday that the resumption of negotiations with Greece has been “constructive”, being held in an “intense” way. According to the source the way to an agreement is still long but can be covered up to May 11, the day which will be held the next meeting of the Eurogroup.
European equities rebound and trade with modest gains after the sharp losses from yesterday. The Greek situation has taken quite confusing and sometimes contradictory contours. On the one hand, European Commission sources said that since the new leader was appointed to the Greek talks with Brussels Group, negotiations registered some progress although they remain some obstacles at the level of pension reform and labor market. But then, Finance Minister German proves skeptical about an agreement at the next meeting of the Eurogroup (11th). Today, Bloomberg reports that the Greek negotiators accused the European Commission and the IMF of being intransigent and thus prevent the completion of an agreement. Today is the first key date in a series of payments that Greece will have to do, having to repay the IMF 203 M €. In addition, the ECB will decide whether to increase the line of credit to Greek banks continue to depend on the Central Bank to operate. In this context, the results released this morning should not significantly influence the market as a whole.
The weakness and volatility that the equity markets have accused the last two sessions is essentially the result of three factors: the uncertainty with regard to Greece, the strength of the euro and the rise in yields. With economic data pointing to a slowdown in the US economy, it is natural and probable the appreciation of the Euro, and may convince many investors to close their selling positions in this currency. Another factor that has conditioned the equity markets is the general rise in yields of government bonds. In part, this rise in yields (bonds decline) due to the fact that many global investors have an overexposure to this market, trying to benefit from the ultra-accommodative policy of the ECB. Thus, as the Euro, when a strategy becomes exceedingly popular there is the risk of Simultaneous Overreaction. The rise in yields essentially penalizes utilities and companies whose business needs of high finance. Today will be held parliamentary elections in England. A political event is always a possible cause volatility, but these elections may cause additional volatility if one considers that the polls show a tie between Labour and Conservatives.
European shares jumped the most since January, buoyed by a surprise election win for British Prime Minister David Cameron’s party and improving U.S. jobs data.
Stocks extended gains after data showed the U.S. jobless rate in April fell to a six-year low, while payrolls climbed 223,000 (Below estimated 224,000), a faster pace than in March.The statement from the Fed’s last meeting said that the continuous progression of the labor market is a necessary (but not sufficient) for the central bank to start normalizing monetary policy. If job creation was well above the estimated we would watch to an appreciation of the dollar and a rise in yields on sovereign bonds, which could translate into a scenario not very favorable to equity markets. If the generation of jobs was significantly lower than estimated, the dollar would lose value, yields should come down but fears about the economy should increase. Therefore, the best scenario seems to be the present one, which is near the forecasts.
Tomorrow Greece will have to repay 755 M. € to the IMF. During the end-of-week, the Greek government reduced its estimates for GDP growth, which is expected to grow 0.80% in 2015, less than the 1.40% forecast in March, when was addressed a letter, about the reforms, to the European Commission.
Technically, the main theme of the next few days will be the S & P test the area of 2120, which in recent months is working as resistance for the upward movement of the index. If the S & P over this area, then it will be possible a new rally.
Asian markets closed higher, reflecting the decision by China's central bank to reduce interest rates from 5.35% to 5.10%. Deposit rates were also reduced from 2.50% to 2.25%. This decision is the result of a evidences pointing to a sharp slowdown in the Chinese economy.