Ger30, UK100 and SP500 are CFD’s, written over the Dax30, Footsie100 and S&P500 Index futures:
In the pre-opening, European equities were trading higher, favored by the strong appreciation of Wall Street and the relative stability of the Asian session. It is not excluded that the standard of yesterday’s session to be repeated today. Yesterday, there has been a remarkable over-performance of the indices of Central Europe comparing to their Iberian counterparts. The reason for this trend is related to the fact that Central Europe’s economies have greater exposure to China than countries like Spain, Italy and even Portugal. Apart from exports, several German companies and other Central European countries have factories in China, which increases their dependence to this country. Today will take place the meeting of the ECB, which will have less interest than usual. The main point of interest will be the update of the economic projections. Since June’s projections, the situation in Greece became less unstable but the slowdown of the Chinese economy has become more evident. The ECB estimates that the GDP of the Eurozone grow 1.50% in 2015, 1.90% in 2016 and 2% in 2017. Some economists expect the ECB to revise downwards their projections for inflation (0.30% in 2015 and 1.50% in 2016 ). At the press conference, held at 13:30 it will be interesting to see if Mario Draghi will weave any comments on the impact of instability in China in the Eurozone economy.
US markets ended with quite sharp gains. This increase can be explained mainly for three reasons. The first is that, despite the volatility, the Shanghai Stock Exchange, which reached yesterday a maximum correction of 4.60%, ended the session to fall just 0.37%. The second factor is of a more technical nature and is the reaction of some investors to the beginning of the week falls. In fact, many investors took advantage of the relative stability of the Shanghai Stock Exchange to buy US equities, which in the previous two days had been penalized. The third factor relates to economic data published yesterday which in the perception of some investors, reduce the likelihood of the Fed to cut interest rates in September. The Beige Book from the Fed, which presents a detailed description of the US economy, mention that economic activity continues to expand at a moderate pace, which in some states can be considered solid. However, this document alerts to a drop in activity in some regions of the country where oil exploration is a major source of wealth. In general, we are witnessing a rise in wages but, for now, has no significant impact on inflation. In general, the interpretation of the investors was that this document described a booming economy but not as powerful as most of the latest economic data seems to point.
The Asian session was more quiet compared with the pattern of recent months. For this purpose, contributed the Holiday in China. Today as well as tomorrow, the Chinese stock markets will be closed due to celebrations of the 70th anniversary of the liberation of the country from Japanese occupation. Still, some markets, such as the Australian and Korean, were affected by the negative indicators of their economies, which are explained in part by the weakness of the Chinese economy.