Ger30, UK100 and SP500 are CFD’s, written over the Dax30, Footsie100 and S&P500 Index futures:
In the pre-opening, European Markets were trading higher, reflecting the good performance of Asian markets. Last week, when the Chinese markets closed, investors quickly replaced the fears about the Chinese economy and the Yuan by fears regarding the European banking system, where the role of Italian banks went to Deutsche Bank. Shares of the largest German bank fell 32% in 2016 (45% minimum in the last week), Société Générale 32% and 36% Unicredit. After these corrections, the selling pressure begins to reach extreme levels. The recent correction of bank stocks stemmed from genuine fears but was extreme due to investor sentiment.
US markets ended the session with sharp gains, the result of rising oil and, to a lesser extent, the good macroeconomic data. The oil achieved a remarkable recovery (+ 12.30%) with the growing rumors that OPEC will reduce, in conjunction with Russia, production of crude oil in order to stabilize its price. Speculative selling positions in oil remain in the maximum of the last years. When selling positions in a commodity, or any financial asset often reach extreme levels there is always the possibility of a rapid recovery as investors try to close them simultaneously. Retail sales rose 0.20% in January, contrary to the forecasts of economists whom anticipated a bending of 0.10%. The fuel prices decline and the adverse weather conditions have limited the growth of retail sales. However, when excluding the most volatile goods (such as cars, fuels, etc.), retail sales increased 0.60% over the forecast of 0.30%. At a time when many investors fear about the growth of the American economy, because of the weakness of other economies, the signal given by retail sales is comforting for two reasons. The first is that retail sales account for about a third of private consumption, which in turn corresponds to 70% of GDP. The second is that after several months, the American consumer seems to have a greater propensity to consume, justified by the increase in wages and the positive effect of fuel price drop in their disposable income. On the other hand, the confidence index of consumers stood at 90.7 in January, compared to 93.0 expected, due to decreased expectations component. Today, US markets will be closed to celebrate the day of the President in honor of US President George Washington (1732-1799).
Asian markets rised, highlighting the Japanese that reached 7% gains. Boosting Nipponese stocks, as well as other Asian markets, was the strong appreciation of the Yuan against the Dollar, the most since China liberalized trading of its currency in international markets. This value, together with the devaluation of the Yen against the US dollar and the extreme levels of last week’s decline, was the main catalyst for the rally in Tokyo. In an interview with the Financial Times during the weekend, the governor of China’s central bank said that the fears in relation to foreign exchange reserves of China are exaggerated. At the same time, Zhou Xiaochuan said he did not observe any important evidence for the Yuan continue to depreciate. In this context, the economic data have taken on a secondary role.