World Stock Indexes Trading - page 29

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The main theme of Thursday’s meeting will be whether the ECB will extend its debt-buying plan and how it will done. This program, which focuses on the acquisition of debt instruments at 80,000 M. € / month, ends in March 2017. According to several declarations from members of the Central Bank, it is very likely that the debt acquisition program will extend Beyond that date. Since the publication of the latest economic forecasts in September, the Eurozone economy has reported a number of improvements, surpassing in some headings not only the economists’ projections but also those of the ECB.
 
Yesterday European stocks were boosted by the banking sector, notably Italian bonds. The Italian press has published a number of news reports concerning Monte dei Paschi di Siena. According to Reuters, citing an Italian source, the Italian State may acquire a stake of 2000 M. € in the capital of the oldest bank in the world. This news has not yet had an official confirmation. If confirmed, this transaction lowered the bank’s capital requirements to about 2000 M. €. The La Stampa newspaper said that the Italian State could use the European Stability Fund, calling for a plan to support its banking sector in a manner very similar to that required by Spain during the sovereign debt crisis. According to the same source, this program of aid to the transalpine banking would amount to 16000 M. €. The shares of Monte dei Paschi di Siena were valued at 11%.
 
The American indexes closed higher once again, prolonging the denominated Trump Rally. Last week, this upward movement seems to have entered a new phase. In the weeks following the US presidential election, stock indexes were favored by the positive expectations which investors drew from the measures that the Trump administration is willing to introduce. But more recently, equity markets seem to have entered into more of a dynamic, driven by more intrinsic factors. In an initial phase the Trump Rally was received with surprise and later with skepticism. However, as US indexes hit new highs in succession, many fund managers are forced to increase exposure to the stock market, otherwise they will underperform against their benchmark.
 
Political developments in Italy will dominate the attention of investors. Yesterday, the President of the Republic Sergio Mattarella appointed Paolo Gentiloni as the future Prime Minister. To justify this choice are, among other arguments, the fact that he had a prominent position in the previous executive and of being a person with good relations with the different institutions of the European Union. This latter quality is particularly important considering that the first dossier that the new government will have to solve is the Monte dei Paschi di Siena issue. The solution through public intervention is the most likely from the investors’ point of view.
 
Although investors are currently focused on the Italian political situation and on the economic prospects that the future Trump administration has created, China remains a relevant variable for the activity of several European companies. In the third quarter of this year, European companies saw a 6.10% drop in profits. However, most analysts estimate earnings growth in 2017 (between 6% and 14%). To this end, emerging markets are an important variable, accounting for 31% of their revenues (compared to 17% of their US counterparts).
 
In the pre-opening, the European indices have declined slightly. The banking sector will again be in focus. In the last two months, there has been a profound change in investor sentiment in this sector. At the end of the third quarter, given the uncertainties of Deutche Bank and the Italian banking system, there was a certain pessimism about the European banking sector. These factors were compounded by weak prospects for profitability as a result of the increasing and severe regulations, the low level of interest rates and the modest growth of the Euro Zone. As a result of all this, the exposure of institutional investors to the sector was the lowest in recent years. The rise in European yields and the increased risk appetite triggered by the US elections, among other factors, have altered investors’ perceptions. At a conference recently held by UBS, most investors believe that bank shares will be the best-looking investment in Europe in 2017 and the sector is the one with the highest profit-making potential.
 
As expected, the Fed raised benchmark rates by 0.25% for the range of 0.50% to 0.75%. This decision had already been anticipated and investors’ attention therefore fell on individual projections for future interest rate increases. On average, Fed members anticipate three key rate hikes in 2017, two in 2018 and three in 2019. 
 
The overperformance of cyclical stocks in relation to more defensive stocks has peaked since the beginning of this Bull Market in 2009. One of the causes of the rally in European markets (in addition to the favorable influence of the American markets) has been the strong appreciation of the banking sector. Within this sector the protagonist has been the Italian banking sector which has shown remarkable resilience to a number of negative factors such as the outcome of the referendum and capital increases of Unicredit and Monte dei Paschi di Siena.
 
US markets closed without major fluctuations, with volume boosted by the maturity of futures and options. However, the news of the seizure of an American drone by China has led to a more defensive stance on the part of investors. This more prudent position translated into a purchase of state bonds, which simultaneously caused the yields to fall. The decline in state yields, which hit the highs this year, boosted interest-sensitive sectors such as real estate and utilities, which prevented major indexes from suffering further losses.
 
Today, a session with a reduced volume should be attended, and so, the lack of liquidity could generate some more pronounced movements. The Dow Jones test at 20,000 points will be the main theme of the day. Also to be added that the US oil reserves will be published at 3.30 pm.
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