Ger30, UK100 and SP500 are CFD’s, written over the Dax30, Footsie100 and S&P500 Index futures:
In the pre-opening, European indexes traded without a clear trend. At the current moment all seek to know what is the extent of the recovery of European stock markets. In fact, there is a risk that this rally is taken advantage of by many fund managers to decrease their exposure to equity markets. The recent rally takes various characteristics of a climb framed in a downward medium term movement: the main buyers are hedge funds and short-term investors which are closing selling positions, the volume is not high and the sessions are particularly volatile. All these signs advise greater caution.
The American markets closed with strong gains, justified by a number of factors. The first was the good performance of European markets, which at this stage is the main catalyst for American stocks. The second was the widespread rise in raw materials (especially oil which continues to exert some influence on the American markets), reflecting the decline of the dollar. The third point is beginning to emerge among American investors convinced that the impact of Brexit in the US and possibly in other economic areas will be lower than had been anticipated. In regard to this view it should be noted that this is based on a feeling and not on facts, and investor sentiment has been quite volatile this year. The fourth factor that explains yesterday’s rally was the fact that the session is the last of the semester for various investment funds. Usually, the end of quarters, semesters and years are particularly positive for stock markets. The Commerce Department revealed that household consumption rose 0.40%, reinforcing the acceleration trend already observed in April, when it grew 1.10%. The increase in May was supported by cars and specialized services purchases. Revenue grew in the same period, 0.20%. The fact that expenses are higher than income shows greater confidence of Americans. Inflation associated with consumption, excluding the most volatile assets, rose 1.60% in the last 12 months. This is the preferred gauge of inflation for the Fed and has gradually been approaching 2% desired by the Central Bank. In real estate, the purchase and sale of homes have undergone a 3,705 bending May from April. In annual terms, this index decreased by 12:20%, the first decrease since the summer of 2014. These data make an important contribution to the analysis of the US economic situation but to refer to May did not provide any evidence on the impact of Brexit, which now constitutes the main cause of concern to the Fed. To be published economic data on post Brexit period, the Central Bank is using the evolution of certain financial assets (yields, equities, credit default swaps, currency, etc.) to try to assess the possible effects on the real economy. One of today’s events will be the participation of the Governor of the St. Louis Fed, James Bullard, an event in London at 18h30. This is the first intervention of a member of the Fed after the outcome of the British referendum.
Asian stocks closed with very modest variations, with the exception of two markets: the Hong Kong and Sydney. The reason for this behavior is explained by a number of factors. The first is that Hong Kong is a former British colony and after China, Britain is the second trading partner through the services provided by the various British financial institutions that operate there. The Australian stock market has a strong presence of mining companies, many of them, such as Rio Tinto and Billiton, which are also listed on the London Stock Exchange.