Ger30, UK100 and SP500 are CFD’s, written over the Dax30, Footsie100 and S&P500 Index futures:
In the pre-opening European markets showed some gains. The disclosure made by the ECB President during the meeting yesterday, about the possibility of introducing additional measures in March, managed to mitigate the prevailing pessimism in financial markets, at least temporarily. The level of pessimism among investors (measured by a number of indicators) reached the maximum in recent years. The survey by Bank of America Merrill Lynch to 211 global managers, which together are managing 610,000 M.USD, allows to highlight the following points:
– The difference between respondents who believe that the global economy will grow in the next 12 months is higher only in 8% to advocating the opposite (the smallest difference since 2012).
– China is seen as the main risk to the world economy. Additionally, most managers expect profits to fall in the next 12 months.
– For the Fed, the average of the respondents estimated that the Central Bank will not increase interest rates by more than 0.50% during 2016.
– Europe and Japan remain the beloved while emerging markets are the ones that raise a greater aversion.
– The difference between managers with an overexposure to the stock market compared to other markets decreased to 21% after the 42% observed in December.
– The average level of liquidity of these managers is 5.40% of their portfolios, the second highest since the financial crisis.
For a more enduring reversal of investor sentiment, the statements of Mario Draghi do not seem to be enough. To attend a recovery of stock markets, it should be confirmed any of the following conditions:
– The decline in fears about a devaluation of the Yuan (which has already been happening)
– The stabilization of the Chinese markets
– The oil recovery
The American indexes closed higher, although their gains were smaller than those observed in Europe. This difference is explained by the fact that the two sides of the Atlantic are in different phases of the monetary cycle. While in Europe the monetary policy is accommodative and could become even more, in the US the Fed launched in December a process of interest rate hikes. This divergence appreciates the Dollar against the Euro, which decreases the amount of revenues of US multinationals in Europe and penalizes their competitiveness in other areas of the world. Another factor that inspired yesterday’s session was the rise of oil even before an increase in the country’s fuel reserves. The US Department of Energy showed a strong increase in crude oil reserves (3.80 million barrels vs. 2.67 million estimated) and petrol (4.56 million barrels vs. 1.9 million estimated).
Asian markets closed higher, especially the Japanese, with the Nikkei reaching valuations of nearly 6%. to explain this performance of Japanese equities are a few reasons. The first was the rise in exports component of the PMI activity index. Exports continue to be the most dynamic part of the Japanese economy. Somewhat related to this topic is the second factor was Mario Draghi’s quasi-promise to take further steps in the near future. These measures will provide more liquidity to European banks, many of which are major lenders in Southeast Asia, a major market for Japanese products. And third reason is more technical and relates to a reaction to the heavy losses in recent days.