Stock Markets – Daily Note – 29/Jul

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

European equities started the session trading slightly higher, reflecting the good performance of Wall Street, the relative stability of Chinese markets and the results published before the opening. In the afternoon will be the expectations for the meeting of the Fed to dominate investors’ decisions. Briefly, Bayer, Total and Peugeot reported results that exceeded analysts’ estimates. Regarding Peugeot, this was the first positive half-yearly result since 2011. Barclays announced preliminary results that met the estimates of analysts. Volkswagen already reported profits in line with the anticipated but said does not expect sales in 2015 significantly differ from 2014, contrary to earlier projections pointing to modest growth.

The lower volatility of Asian markets boosted US equities. The rally was led by the mining and oil sectors, which had been the most penalized by falls in Chinese stock markets and commodities. The rise may also have been influenced by the closure of vendors positions by the so-called fast money (short-term investors) before the meeting of the Fed. The published results are in line the standard of this earnings season. Pharmaceutical Pfizer and Merck, UPS carrier to and Ford reported results above the estimated but none of them managed to register an increase in revenues, scoring the strength of the dollar and the weakness of some economies as the main cause. The meeting of the Fed will be the main event of the day. Investors will look for more clues about when the central bank will increase interest rates. An early rise in interest rates could constrain the economic recovery observed in the 2nd quarter; if this time is delayed it may later force the Fed to adopt a more intense pace in increases in interest rates. Probably the message content of the meeting should not deviate significantly from the last statement or the intervention of Janet Yellen in Congress. Thus, in the message to the markets, the Fed will most likely point to the expansion of the economy through the reduction of household debt, the greater consumer confidence and improvement of the labor market. The differences between this statement and the one from the prior meeting may provide some clues about the timing of the first hike in interest rates. A greater emphasis on accelerating the economy may be considered as a sign of an increase already in the September meeting.