Stock Markets – Daily Note – 19/Fev

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

In the pre-opening, European equities presented some losses. On Monday, despite the fall of the previous week, the conditions for the equity markets initiate a recovery were gathered, at least in the short term: the yuan has traded steadily in the international markets, oil has recovered and the odds of Fed increase interest rates decreased significantly. The selling pressure on the European banking sector was beginning to reach extreme levels, both the fundamental level and the technical level. Since the beginning of the week up to yesterday’s maximum DAX appreciated by 6.20% and the S & P 3.50%. Now the question is how far will extend this movement. To have an idea of the future it is important and useful to know what is the perception and positioning of global investors. Merrill Lynch Bank of America conducted a survey between 5 and 11 February, with 198 global managers, which together manage 591,000 M.USD. From this survey stood out some interesting points. For these institutional investors, the main risk for financial markets is the possibility of the occurrence of a recession in the US, then the default of any emerging country. Thus, the slowdown of the Chinese economy is no longer the main concern of global investors. In this context, the proportion of liquidity in the portfolios of these managers reached 5.70%, the highest level since 2001. European equities remain to be the preferred while only 5% of managers interviewed have an over-exposure to equity markets compared to its benchmark. Despite reduced yields, the propensity of respondents to purchase bonds increased. Fears of a recession does not extend to Europe, which should continue to grow. If the stock market indices continue to be valued, these managers will have to follow their benchmarks and will have to allocate liquidity to the purchase of shares.

US markets closed with some devaluations. Recent gains and the correction of oil led some investors to decide for some profit taking. In this sense, technology stocks (with the exception of IBM which was the best performer in the Dow Jones because of the positive recommendation from Morgan Stanley) and retail had the hardest hit. Concerning the mentioned sector weighed the profit warning from WalMart. WalMart reported quarterly results that beat estimates but revenue fell short of anticipated due to the appreciation of the US dollar which reduced the value of sales made outside the US. This trend of appreciation of the US currency led to WalMart to reduce their revenue estimates for the current fiscal year. The proposed dividend increased slightly from 1.96 USD per share for 2 USD. In US, Oil reserves increased last week at 2.14 million barrels (less than 2.86 million estimated). gasoline reserves showed a more significant change compared with the estimates (3.3 million barrels compared to 63,000 estimated). Oil lost 1% in the New York session. In the short term, investors will continue to monitor the developments regarding Iran’s position in the context of the agreement reached between Russia and some members of OPEC. In macroeconomic terms, the indicators revealed presented an indefinite character. The number of unemployment benefit applications fell to the lowest of the last three months (262,000), a positive sign for the labor market, despite the employment report disappointed the market. In fact, this was the 50th consecutive week that this indicator remained below 300,000, a positive number not seen since the 1970s Since the business activity index of the Philadelphia Fed rose slightly from (-3.5) to (- 2.8). This was the 6th consecutive month of contraction in activity in this region. Economists estimated that this indicator had set in -2.90. Furthermore, the leading indicators of the economy fell 0.20% last month, according to predicted.

Asian markets closed in negative territory. The losses were quite modest in markets such as China and Hong Kong but were more expressive in Tokyo, where the continuous appreciation of the yen against the dollar has penalized the shares of exporting companies. Since the beginning of the year, the Japanese currency appreciated 6% against the dollar. To emphasize that variations in foreign exchange market are less significant than in equity markets, and a 6% move of an exchange is very significant over such a reduced period of time.

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