Stock Markets – Daily Note – 30/Jan

Stock markets in Europe opened high but declined throughout the day. The initial optimism reflects the positive effects of recent decisions of the ECB, which has allowed them to overcome some risks of current conditions. At the macroeconomic level, the main point of the European agenda was the publication of the inflation level. The figures were slightly below the estimate of economists who have estimated a larger bending of prices, explained by the continued decline in fuel prices and its effects on the production costs of various goods. The importance of this data is lower than before, because investors know that the measures recently announced by the ECB will only have impact in the coming months. The European Union decided yesterday to extend the sanctions imposed on Russia until September this year. Qatar Airways acquired 9.99% of IAG, which holds Iberia and British Airways. European airlines have attracted the interest of buyers from the Middle East. Last year, Etihad Airways, the United Arab Emirates company, acquired 49% of Alitalia.

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. In opposition to what has been observed in recent sessions, most companies which reported their quarterly accounts yesterday, managed to beat estimates.

Stock Markets – Daily Note – 29/Jan

The European stock markets traded low early in the session, following of the weakness of the American and Asian markets. The earnings season of the European banking sector has started today with the publication of quarterly accounts from Deutsche Bank. The German bank reported a quarterly profit of 438 M. €, which contradicted the estimates of a loss of 341 M. €. This deviation is mainly explained by the strong increase in trading revenue and a reduction in legal expenses related to legal proceedings in which Deutsche Bank was involved. The banking sector has registered a notable underperformance in recent months. While some European indexes managed to reach new highs earlier this year, the banking sector is set in the not too distant levels of minimum 2014. The oil sector may be influenced by the decrease of crude oil price. However, it must be remembered that in the last week, Brent (crude traded in Europe) has registered a sharp overperformance against the West Texas Intermediate (oil serving as a reference in the US), to the extent that it is in this country that has seen a greater increased production, which, for legal and logistical reasons, can not be exported to Europe.

American indexes closed with significant losses. Despite the meeting of the FED has been the main event of the day was the fragility of oil to dictate the session trend. Additionally, start growing fears in relation to business results that have been published. 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.

Stock Markets – Daily Note – 28/Jan

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.

Yesterday American Indexes closed with significant losses, due to the weakness of European markets and the disappointing results of some top companies. The snowstorm that struck New York (though on a smaller scale than feared) negatively conditioned the session volume. The most negative feeling is enhanced by a number of disappointing results. Caterpillar, a very sensitive company to economic cycles, reported lower than estimated earnings although revenues have overcome the forecasts. However, the company reduced its projections for 2015, indicating the collapse of oil prices as the main reason. The oil industry has been in recent years one of the main buyers of machinery manufactured by Caterpillar. 3M (which is a very important conglomerate in that it has a range of activities that include the production of 55 000 products) reported slightly higher profits than anticipated but announced that revenues were below expectations. The appreciation of the dollar has had a negative impact on quarterly accounts of many American multinationals. Microsoft has depreciated by 9.25%, after the disappointing numbers reported yesterday evening have triggered some downward revisions recommendations. Today’s meeting of the FED will be the main event of the day. Investors expect the central bank to keep the outline of the statement from the meeting in December. At that time, the Fed introduced the concept of “patience” in its statement by stating “that could be patient regarding the beginning of the standardization process of its monetary policy.” However, the big surprise was that the Central Bank has derived the expression “for a considerable period of time” when referring to keeping interest rates at historically low levels. Perhaps the big news of today’s meeting may be the removal of the term. Additionally, when questioned by financial journalists, Janet Yellen said that the Fed would not raise interest rates at least the next two meetings, considering the information it held. It will also be interesting to see what the statement will inform about the position in relation to its objectives. This Central Bank has three main objectives: full employment, inflation stability (which is identified as a rate of 2%) and the maintenance of long-term interest rates at moderate levels. The monetary policy of the Fed has had a “balanced” approach (expression used by the Central Bank itself) in an attempt to achieve these goals.

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Stock Markets – Daily Note – 26/Jan

The European equity markets started the session trading low but climbed throughout the day, reaching new highs. Investors are preparing for another intense week, with continued earnings season in the US and in Europe and the first meeting of the Fed this year. At the macroeconomic level, the publication of the sentiment index of German business, the IFO, showed a slight improvement achieved in January. In the second half of 2014, this index has been falling before the repeated signs of slowing down not only in Germany but also the Eurozone. Another factor which may gain some weight is the rebirth of the tensions in eastern Ukraine, to the extent that in recent days there have been several armed conflicts in this part of the country. The fall of crude oil can create some selling pressure in the sector of oil shares, as should benefit the airline stocks, chemical companies and automakers. The latter sector has been one of the most favored by the fall of the Euro against the dollar and other currencies. 2014 was the first year since 2007 that saw a rise in car sales in Europe, with major CEO optimistic this sector for the current year, not only by the dynamism of the domestic market and the competitive advantage that the Euro has enabled us foreign markets.

The American indexes recover from opening downwards in reaction to the results of the Greek elections and the New York Storm. The oil fall, the Goldman Sachs recommendation to reduce on some mining companies as well as the disappointing results of some top companies conditioned investor sentiment. The good performance of the Nasdaq is explained by the appreciation of Apple and Google shares. Goldman Sachs downgraded various stocks of the mining and metal production as well as the target price for certain raw materials, such as copper, aluminum and nickel. This decision had an impact not only in the mining sector as in investor sentiment in the global economy. Copper, nickel and aluminum are raw materials very sensitive to economic cycles, so reducing its target price reinforces the fears of investors in the global economy. It is recalled that last week the World Bank and the IMF reduced its estimates for global growth for 2015 and 2016.

Stock Markets – Daily Note – 23/Jan

Stock markets traded up. Investors continue to try to assess the impact of the ECB’s decision announced yesterday. In which extent the equity markets had not incorporated this decision, what are the sectors that most benefit from the acquisition of bonds and their effects in different economies, etc. The Central Bank announced that it will acquire 60 000 M. € monthly of debt instruments (mainly government bonds). The ECB will purchase a total of 1,080,000 € M. of debt instruments, over 18 months, starting in March. This is slightly higher than what was known early yesterday by some rumors. The ECB’s decision reinforced the downward movement of the Euro. This trend has justified the over-performance of stocks from export companies. Another factor that attracted the attention of investors was the publication of the final reading of the PMI activity index (Purchasing Managers Index) for the euro zone which averaged above estimates. A slight improvement over December but not strong enough to dispel fears about the European economy.

The American indexes have followed the evolution of the European, justified by the implementation of the stimulus program announced by the ECB. It should be noted that the decision of this institution has branches that are not confined to Europe but take on a global scale in the same way as the accommodative policy of the FED had in recent years. With this premise the good performance of some sectors is explained. Europe accounts for about 13% of total sales of the companies comprising the S & P500. Sectors which are among the best performers were the financial and technological. Earlier this week, about 80% of the companies in the S & P 500 that have reported their quarterly accounts, reported profits higher than estimated. However, some major companies like IBM did not fit this pattern.

It was published the PMI index of China, prepared by HSBC, which in January reached 49.8 compared to 49.6 observed in December. Despite this improvement, the manufacturing activities in China remains at levels lower than 50.0, the line separating a phase of contraction of expansion.

Stock Markets – Daily Note – 22/Jan

The Stock market rose after a three-day rally in the SP500 Index, as banks and transportation companies posted better than expected earnings. The session was marked by the European Central Bank’s announcement (ECB) that will adopt an expanded stimulus plan, including government and corporate bonds of 60 billion euros per month. The purchase will continue until September 2016. The announcement was made after the ECB maintained the reference rates unchanged at record levels.

The attention of global investors are focused on the European markets, and Wall Street is being relegated to the background. Earlier this year, many strategists from global banks argued that investors should have greater exposure on European markets. Therefore, given the growing evidence that the ECB would act, many global investors have followed this line of thought. Although most US companies continue to report higher than estimated earnings, some of the major companies have had difficulty in following this trend.

Asian stocks were also inspired by the expectations of European investors in relation to the ECB meeting. In Shanghai, the stock market continued to be valued, after heavy falls suffered earlier in the week. However, despite the recovery, financial stocks have lagged in full this upward movement. However, in Davos, the governor of China’s central bank said monetary policy in the country is expected to remain stable in that it fits the current needs of the economy.