Stock Markets – Daily Note – 26/Mar

Ger30, UK100 and SP500 are CFD’s, written over the Dax30, Footsie100 and S&P500 Index futures:

European markets opened lower, penalized by Wall Street correction and the emergence of geopolitical risks in the Middle East. The sharp decline in US stocks should penalize European action, including the most cyclical and technology. Indeed, in recent days, US technology stocks (especially biotechnology) have been preferred for profit taking. This morning, aircraft from Saudi Arabia, Qatar, Bahrain, and other Arab countries attacked positions of Shiite militias in Yemen involved in a civil war with the Sunni government and supposedly supported by Iran. Yemen is not a significant producer of oil (representing only 0,20 % of world production) but has a very relevant geographical area to be in the south of the Arabian Peninsula and control the strait that connects the Red Sea to the Indian Ocean, a very important sea passage zone in world trade and oil transportation Middle East to Europe. As a result of these attacks the oil accumulated gains of more than 3% in the Asian session, which could ensure overperformance to the European oil sector. On the other hand, the rise in crude oil price could intensify selling pressure on shares of airline companies.

The US equity indexes closed yesterday with sharp losses. The reasons for the weakness of yesterday are from technical and fundamental nature. The technical reasons are linked to the fact that the rise in US indexes have reached extreme levels (although not as extreme as the Europeans) so a correction was not entirely unlikely. In fact, many investors decided to take profits in sectors that had accumulated higher valuations, such as biotechnology. Another factor that has weighed on investor sentiment is the downward revision of estimates for corporate profits for the 1st quarter of this year. The main reason for this review is the rise in the dollar, a trend that many companies had already been identified as a threat to the activities of their companies. China, the world’s second largest oil consumer, has taken advantage of the low prices to increase their reserves, according to the manager of Sinopec (one of the largest oil companies in the sector), reached a record level. This trend is expected to weigh on future demand for crude oil from China. It was revealed by the Commerce Department that durable goods orders fell in February for the 3rd time in 4 months. It declined 1.40%, while analysts estimated a slight increase of 0.20%. Excluding transportation, durable goods orders declined 0.40%, compared to an estimated increase of 0.20%.

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