Ger30, UK100 and SP500 are CFD’s, written over the Dax30, Footsie100 and S&P500 Index futures:
Stock markets negotiate with contained oscillations. The European markets will be the stage of the opposition of two effects: the positive associated with the rise of Wall Street and the negative associated with the recovery of the Euro, resulting from the meeting of the FED. The depreciation of the euro has been the main driver of European markets, so its recovery is a negative factor in the current environment. Therefore, is expected an underperformance of the European indexes against their American peers. If the recovery of the Euro continue, the DAX should be penalized as it is the most sensitive to the common currency as was the most favored for the losses this currency suffered until yesterday.
US markets closed with sharp gains, reacting positively to the Fed meeting. The meeting of the Central Bank would be based on two points: The timing of the first ascent of the rates and the number of increases that will follow this first increase in interest rates. The answers to these questions were given by the statement of the meeting. As expected, the FED removed from the statement the term “patient” with regard to the normalization of monetary policy. With this decision, the Central Bank earns a greater room for maneuver in relation to the rise of the rates, opening the possibility of an increase from June. In the same statement, the Fed announced that the evolution of interest rates will depend on continued improvement in the labor market, as well as the approach of the inflation target of 2%. In this regard, the meeting provided important clues. The Fed reduced its estimates for economic growth in 2015 from the range (2.60% -3%) to 2.30% -2.70%. Additionally, the projections for core inflation (which excludes the more volatile prices of goods such as fuel and food) have changed from 1.50% – 1.80% to 1.30% – 1.40%. Regarding the evolution of the rates, the average estimate of the members of the FED declined from 1.125% to 0.625%. In other words, at the December meeting, the Central Bank members estimated at least 4 increases (0.25%) in interest rates, while now they anticipate only two. Before the employment report from February, most investors anticipated a rise in interest rates in September. Later, before the strong signals in the employment report, most investors began to assimilate the possibility of a rise since June. Now, interpreting the statement of the FED in the light of current economic conditions, the first ascent of the rates expected in the last quarter of this year. This timing delay for the first ascent rates justifies the sharp rise in US markets after the FED meeting. The ultra-accommodative monetary policy has been the main catalyst of this Bull Market started in 2009. In the long term, equity markets are influenced by two variables: corporate profits and interest rates. But how quickly the stock markets react to the second variable is much higher than the reaction to the first.