The SP 500 has risen about 2.5% in November, peaking in the Intraday on November 28th, the Dow Jones Industrial Average also rose 2.5%. The Russell 2000 index was little changed, while the Nasdaq Composite Index reached a maximum of 14 years after a rally of 3.5%. The Stoxx Europe 600 Index rose 3.1%, and Germany’s DAX index rose 7%, the biggest monthly gain since 2012.
Thirty-eight out of 43 energy stocks in the SP 500 dropped in November amid plummeting oil prices.
The Organization of Petroleum Exporting Countries kept its production ceiling unchanged, underscoring the price war in the crude market and challenge to U.S. shale drillers. The Crude extended its monthly loss depreciating about 10%, to settle at $66.15 a barrel, the biggest single-day drop since 2009.
Market pressure resulting from the oil drop was offset in November by economic data that exceeded analysts’ estimates. The US economy grew at an annualized rate of 3.9% in the third quarter, up from an initial reading of 3.5% and above the estimated value of 3.3%.
The European Indexes showed some gains today. From a macroeconomic point of view, this week will be important to to understand the current economic situation. The indicators on this week should condition the economic projections of the ECB at its December meeting, as well as their propensity to implement a sovereign bond buying program.
Oil fell to a four-year low after OPEC kept its oil production unchanged at today’s meeting, dragging down the shares of energy companies, Gulf-region stocks, and the Norwegian krone. The oil market is facing a revolution with the production of oil shale in the US. This revolution allowed the US to increase by 50% its production of oil in just two years.
Today was the Thanks Giving Holiday in the United States, and as expected, a day with less volume in the markets. Yesterday US markets closed with modest gains. The costs of American families grew 0.20% in October, offsetting the fall 0.20% observed in September. For the real estate market, sales of new homes during the month of October reached the 458,000, representing an increase of 0.70% compared to the estimation of 470,000. Compared to the previous year, the growth was 1.80%. This data reinforces the perception that the housing market has entered a new phase of expansion after the standoff in the summer of 2013. The Chicago manufacturing activity index PMI recorded a fall in November for 60.80, against the estimation of 63.00.
The European Indexes consolidated near highs and investors evaluated data on labor, production and housing to measure the strength of the US economy. The US markets will be closed tomorrow for the Thanksgiving day.
Six of the top 10 industries in the SP500 rose today, with telephone and technology companies presenting the greatest gains. Energy shares were the most depreciated, falling 0.6% before the OPEC meeting tomorrow. Deutsche Telekom said that together with the French Orange is in preliminary talks with the British group BT to launch an offer on the Franco-German joint venture EE.
In order to stabilize crude oil prices, Saudi Arabia led negotiations with Venezuela, Mexico and Russia, to reach an agreement to reduce production. Although the OPEC countries are favorable to a decrease in production, the share of each member is a source of contention.
The US economy grew 3.90% in the 3rd quarter of this year, surpassing not only the estimates of economists (3.30%) as the initial forecast of the Commerce Department, the public agency responsible for the calculation of GDP. Contributing to this upward revision were private consumption (+ 2.20% vs 1.90% estimated) and investment (10.7% vs 5.50% predicted). On the negative side, exports have been revised downwards as well as public spending.
Inflation linked to GDP increased by 1:40% in the 3rd quarter. The price of real estate in 20 major US metropolitan areas increased, year on year, 4.90% in September. Consumer confidence unexpectedly fell from 94.5 seen in October to the current 88.7.
Due to the celebration of the Thanksgiving Day tomorrow and the reduced session on Friday, it is not excluded that at the end of the day some managers reduce their market exposure. While we celebrate the Day of Action Thanksgiving, OPEC will meet in Vienna and will decide if production decreases, a decision that will influence the price of oil and reflection of the equity markets. On the same day, various data will be reported in Europe. Therefore, it is not excluded that many American managers who will only return to their trading rooms on Monday take a prudent stance.
The European indices started trading with modest gains. The macroeconomic schedule dominated the session. The Gross Domestic Product (GDP) in Germany, in the third quarter, grew 12:10%, in line with forecasts. Among the various components of the GDP stand out private consumption, which registered an increase of 0.70%, and exports, which rose 1.90%. On the negative side, investment fell 0.90% due mainly to the Ukrainian crisis and the delicate economic situation in Russia. Technically, many indicators have reached the most extreme levels of overbought in recent months.
The decline of oil on Asian and American markets broke the recent recovery of the European oil sector.
Yesterday US markets closed with contained gains, which had a greater expression on technology stocks benefiting from a favorable situation, marked by several factors. These factors are the positive signs in the US economy, the good results of companies in this country, the measures implemented or promised by several central banks (ECB, Bank of China and Bank of Japan), mergers and acquisitions, and some fear by many fund managers losing the rally of the year.
The beginning of the session was favorably influenced by the publication of the 2nd estimate of the GDP for the 3rd quarter which showed higher-than-estimated.
This week will be particularly intense and that intensity should focus primarily on the first three days of the week, as the US stock market will be closed on Thursday, Nov. 27, for the U.S. Thanksgiving holiday and on Friday will have a reduced session. This is an important moment for the assessment of the real state of the economy in the Euro Zone. The indicators to be published should condition the economic projections that the ECB will hold at its December meeting, as well as their propensity to implement a sovereign bond-buying program. In addition to the confidence index of German business, changes in the GDP of the German and Spanish economies will be published, inflation in the Eurozone, as well as some reliable indicators for this region. The more fragile are the numbers of the economic agenda largest is the probability assigned by investors to the implementation of a quantitative easing program by the ECB.
In the US, are also disclosed relevant data such as GDP for the 3rd quarter, consumer confidence, the Chicago Purchasing Managers’ Index, among others. The Thanksgiving Day holiday also precedes the beginning of the Christmas season retail sales, which is one of the factors of great influence in Wall Street this time of year.
The European indexes have opened slightly higher than the previous close and begun to rise after Mario Draghi’s intervention at this morning conference. The conference started at 8:00 and was organized by the Bundesbank and with the participation of several German banks. Mr. Draghi said the ECB must drive inflation higher, and will expand its program of asset purchases, if necessary to achieve this. On Monday, before the European Parliament, Mario Draghi had already repeated that the ECB will continue to support the economy of the Eurozone and could implement a quantitative easing if the situation worsens. So far these promises have been enough to push up the markets as investors believe that his words will gain expression through concrete measures.
The American markets closed yesterday with very slight gains and today the futures suggest a higher open. The macroeconomic agenda was the main point of the session. The positive signals emanating from the US economy overlapped the worrying signs from China and the eurozone. Inflation still remains at levels below 2% that constitute the medium-term objective of the FED. According to the Association of Home Builders, home sales rose 1:50% in October compared to September, reaching the 5.26 million units (annualized number), surpassing the 5.15 million estimated. On an annual basis, home sales increased 2.50% over the same month last year. This was the first positive annual growth recorded in 2014. After the recovery has suffered a break in the summer of 2013, the housing market is starting to shown signs of an upward movement. Leading indicators of the economy (that precede their cycles 6-9 months) rose 0.90% in October, beating economists’ forecasts. The activity index prepared by the Fed reached 40.8 in November, down from 18.3 estimated and the 20.7 recorded in October. This indicator is particularly volatile but the November reading should contain some type of error. In fact, according to some economists, a reading of 40.8 corresponds to a GDP growth 6.50%. The forecasts for growth in the 3rd quarter of this year for the US economy are 3.30%.
The first hours of trading the European Stock Markets were marked by the publication of a relevant economic indicator in China, the PMI index for the manufacturing industry, prepared by HSBC economists. According to HSBC economists the manufacturing activity in this country fell to 50.0, the lowest level in six months. This reading was below the 50.4 recorded in October and 50.3 estimated by economists.
The first hour of trading did reflect investors’ concerns and this was compounded by the publication of the PMI index for the manufacturing industry in Germany and in the Eurozone, as the values were below the estimate. After the opening of US market, the situation was reversed with the publication of US economic data with values above expectations.
The market will be impacted today by Loretta j. Mester’s speach from Fed, and tomorrow at the opening bell of the European markets by the speech of Mario Dragui.
In recent days, European markets had an overperformance comparing to the Americans. There are several reasons for this behavior, of which to highlight the words of Mario Draghi at the European Parliament and a recent study by JP Morgan which maintain their preference for the European Stocks, justified by the possibility of the ECB implement quantitative easing measures and the fact that European indices have better ratios (as the PER, share price divided by earnings per share of the company) more appealing than Americans. Another factor has to do with the expectation of some international investors that the difference in returns between the American and European markets may decrease by the end of the year. For example, since the beginning of the year, the SP500 appreciated by 10.84%, while the DAX fell 0.83%.
Technically, today is a very important day. After the consolidation of the previous days, the SP500 broke up that range on Tuesday, reaching a new high, also surpassing the 2050 resistance. Generally, when an index or stock breaks a consolidation range, the movement in the next few days is usually pretty directional. Thus, if the SP500 closes above 2056 (Tuesday High), the rally may extend. If it closes below 2040 (Yesterday Low) then it may occur a correction.