Ger30, UK100 and SP500 are CFD’s, written over the Dax30, Footsie100 and S&P500 Index futures:
In pre-market, European shares were trading slightly higher, due to the strong recovery of oil prices. Today, the Minister of Petroleum of the United Arab Emirates stated that his country and other OPEC members are trying to reach an agreement, and also with producers outside the cartel to reduce production of crude oil. Despite this initial impulse, the banking sector will continue to take the leading role in the European session. The weakness of the banking sector was originated in Europe but has spread to the US and also to Asia. This morning, Commerzbank reported profits higher than estimated (187 M € versus 156 M €), grounded in a larger loans to individuals. Still, the CEO of the bank includes a 2016 full of challenges. At a time when many investors and economists fear a potential recession in the global economy, the publication of the preliminary reading of the Eurozone GDP gains greater relevance. Compared to the previous quarter, the Eurozone economy will have grown 0.40%, which would put the annual increase in 1.50%. Underpinning this growth was essentially domestic demand and to a lesser extent investment. These items should have offset the slowdown in exports due to the weakening of China and other emerging economies. For 2016, estimates point, on average, for an increase between 1.50% and 1.80%, helped again by domestic demand, which should be underpinned by low interest rates and the fall in unemployment and fuel prices. The main risks are the economic slowdown in emerging countries, especially China, geopolitical tensions and volatility in financial markets.
US markets ended the session with losses of more than 1%. The weakness of European markets and the sharp losses of oil conditioned the session. Still, at this stage, the American indices have proven to be the most resilient to the global situation, still trading at levels above the lows from January. Oil price was influenced by two opposing factors. The first is positive and is related to the diplomatic efforts which are being conducted with a view to a possible agreement of reduction of crude production from OPEC and Russia. The second factor is negative and is more palpable. Last week, in Oklahoma, at the Cushing terminal, where pours a very significant part of American production, stored oil reached 65 million barrels, a record high. A pattern that has emerged in recent days is the weakness of the banking sector, which since the beginning of the year lost about 16%. The main cause of this weakness relates to the problems that European banks face and some domestic factors. Although most US banks have reported good results, on their future hang two other factors. The first is its exposure to the oil industry, which it funded in recent years. The second is the narrowing of the long-term interest rates (at which banks lend) and short term (which banks fund themselves), which reduces their margin. The highlight for the economic agenda today is the publication of retail sales. Economists estimate a bending of 0.10% but this is due to the decrease in fuel prices and smaller deals in car sales. Leaving aside these two factors, retail sales are expected to have grown 0.20% in January. This indicator is an excellent sample of domestic consumption (accounts for about one third), more reliable than consumer confidence which will also be released today. In face of the external turmoil, the growth of US GDP should be based mainly on domestic demand.
Asian markets which were open today closed in negative territory. The Japanese stock market was the most penalized, correcting almost 5%. The weakness of the Japanese market is linked not only with the international situation as well as specific factors, including the strength of the yen (which undermines exports, a major driver of the economy) and the fact that many investors use Japanese equities as a vehicle to establish short positions in the Chinese markets. In fact, excluding the Hong Kong stock market, the Nikkei index is the most correlated with the Chinese indices. Besides providing greater liquidity in Tokyo market is much easier to establish short positions than in Shanghai or Shenzhen.