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.

Stock Markets – Daily Note – 21/Jan

The European Indexes climbed. The expectation of tomorrow’s ECB meeting dominates the feeling of European investors. Today starts the World Forum in Davos, an event that brings together many politicians, economists and top investors, it is therefore an opportunity to gauge their perspective on the world economy. The slowdown in China’s economy is one of the issues, as is one of the causes for the cut in global growth estimates for this year. It is not excluded that some of these politicians to wave the ECB meeting tomorrow, which could have an impact on the course of stock market indexes. The earnings season is gaining a greater expression in Europe. The Dutch ASML, which is world’s largest producer of equipment for the manufacture of semiconductors, reported results and sales over the estimated, increased the dividend and announced a buyback program of own shares totaling € 1,000 M, which will last until 2016. ASML is confident for the 1st half of this year.

U.S. stocks rose for a third day as energy shares rallied and speculation grew that the European Central Bank will provide more stimulus. In any market phase is important to know what is the positioning and sentiment of global investors. Despite all the uncertainties on the horizon (global economic slowdown, political instability in Greece, the oil price decline, etc.), global investors have increased their exposure to stock markets. According to Merrill Lynch / Bank of America, the liquidity in investors’ portfolios is at minimum levels of the last six months (4.50% of the amount under management). On the one hand, this data is positive because it demonstrates the confidence that these investors have in stock markets. On the other hand, if liquidity is at low levels, investors no longer have many more ways to boost the stock market, unless they can capture the subscriptions of savers.

Stock Markets – Daily Note – 20/Jan

The European indexes closed slightly higher and were in consolidation throughout the day. At this stage, European investors are more focused on the ECB’s Thursday decision than in the cooling signs of the global economy. Today in Beijing, the IMF reduced its forecasts for global growth. For 2015 this institution estimates a growth of 3.50% and 3.70% in 2016. In October, the IMF projections pointed to increases of 3.80% and 4% respectively. As the World Bank, the IMF pointed to the slowdown in the Eurozone, China, Japan and some emerging countries (including oil producers) as the main reason for cutting their estimates. These should also reduce the positive effects that the oil drop will take in energy-dependent countries such as those in Western Europe. The IMF decision is reinforced by the reading of China’s GDP, which indicated that the economy grew at the slowest pace in 24 years. The prevailing belief in the market is that the ECB will announce its sovereign debt purchase program. This belief was reinforced yesterday by the French President indiscretion that clearly stated that the ECB would go that way. Now, for investors the unknown is the program amount and its mode of action. While these issues do not find answers, many investors increase their exposure to the market, fearing to lose the positive effects that the ECB’s decision could have on the stock market.

In the US, during today’s session, investors were focused in the results of US companies and the evolution of European markets, which continue to oscillate between optimism about the ECB and some apprehension for Greece. The earning season in the US is in the beginning but this week will gain intensity, with dozens of constituents of the S & P to submit their quarterly accounts.

Asian stocks reacted favorably to the data of the Chinese economy. In the last quarter of 2014, China’s GDP grew 30.7%, putting growth in 2014 at 7.40%, slightly below the 7.50% which were the object of the government in Beijing. For the stock markets, 7.40% variation of the economy reveals that the slowdown is contained and simultaneously does not preclude the Bank of China to adopt further monetary stimulus measures. After losing 7.70% during yesterday’s session, the Shanghai Stock Exchange traded up by about 2%.

Stock Markets – Daily Note – 19/Jan

The European indexes started the week trading high with the positive expectations for the ECB meeting next Thursday (22 Jan). These expectations should overlap to some risks hanging over the European markets since increase the odds of the adoption of a sovereign bonds buying program by the ECB. Although the program’s scale is still unknown, there were two indications that the ECB will act. The first was the assent by the European Court of Justice for the purchase of debt by the ECB under the OMT program (Outright Monetary Transactions). This assent is extended to a debt purchase program from the perspective of quantitative easing, thus rejecting the objections of the German Constitutional Court. The second clue was the abandonment by the Swiss National Bank (SNB) of the fixed exchange rate of the Swiss franc (CHF) against the Euro. This decision was taken considering that the ECB will adopt a quantitative easing program, which would make the SNB’s currency strategy unsustainable, in that it would be forced to buy very large amounts of Euros. However, over the horizon hover some threats. The first is perhaps timely and it is the fall of 7.70% of the Shanghai Stock Exchange. The second is more relevant and relates to the survey reported during the weekend that the advance of Syriza increased last week. According to the poll conducted by the agency Kapa Research, SYRIZA has 31.20% of the vote compared to 28.10% of the New Democracy party. This poll contradicts a study by Goldman Sachs argued that the party of former Prime Minister Samaras would win the election, which was one of the catalysts of last Friday climb. The Holiday on Wall Street should reduce the volume traded in Europe.

Last week the US markets closed high, reflecting the good performance of European markets and the rise, although volatile, from oil, which led to a rise in its industry and served as a catalyst for the rest of the market. This relegated to the background the disappointment regarding the results of the financial sector. Today, US markets will be closed for Martin Luther King Day.