Ger30, UK100 and SP500 are CFD’s, written over the Dax30, Footsie100 and S&P500 Index futures:
In the pre-opening, European indexes traded lower, before the loss of momentum of the US stock market in the final stage of the session and the disappointing data in China. Thus, the most exposed to the Chinese economy sectors such as automotive, industrial, mining, among others, may register a under-performance. Chinese economic indicators support the decision of the IMF, the OECD and more recently the World Bank to reduce estimates for global growth. Yesterday, the World Bank said it expects the world economy to grow only 2.40% in 2016 compared to the previous 2.90%.
American indices closed higher, reaching the maximum this year. To find the explanation for the recent rally of US stocks is necessary to go back to the 23rd of May, when we analyzed the monthly survey prepared by Merrill Lynch Bank of America with several global managers. In this investigation, it was highlighted the neutral position of these investors in relation to the equity markets, which translated into a high level of liquidity in their portfolios relative to their benchmarks. Later it was concluded that global managers had liquidity to accompany a possible rise in stock market indices, but at the same time need this liquidity to meet subscriber’s redemptions. Thus, despite its neutral stance, institutional investors should show themselves quite sensitive to changes in stock market indices. If these Indices appreciated they would have to buy shares for not registering an under-performance compared to its benchmarks. If the equity markets fall their funds should suffer more redemptions, which will force them to use the liquidity available. If this liquidity decreased rapidly, these managers would be forced to sell shares to reconstitute it. In short, the recent rally in the equity markets is explained by the intention of many managers to not record one under-performance against its benchmarks and may not indicate a strong belief in the current economic and financial environment. A pertinent question that arises is why in this context of uncertainty, purchases of fund managers are more incisive in the US than in the euro-zone. Essentially for two reasons. The first and most important is exchange. This uncertainty regarding US interest rates led to a devaluation of the Dollar against the Euro. And in this context, the sensitivity of European companies to exchange rate movements is much greater than their American counterparts. Between 40% to 60% (in some cases the percentage is greater) of the revenues of European companies are generated outside the common space. Regarding the American multinationals that percentage varies between 20% and 30%. The second reason for the preference of global managers by US stocks relates to the greater dependence of European companies in the outcome on the UK’s EU referendum. Yesterday’s session was also marked by some specific factors companies. The Yahoo shares gained ground after “The Wall Street Journal” has reported that Verizon Communications plans to submit an offer of about 3000 M.USD by Yahoo internet business. On the other hand, FedEx also captured the attention, after the company announced it will raise its quarterly dividend by 60% to 0.40 USD per share, due to the recent strength demonstrated by parcel delivery area.
Asian markets ended mostly in low because of the disappointing data of the Chinese economy. The only exception was the Tokyo exchange, which benefited from the devaluation of the Yen against the Dollar. In May, China’s exports fell 10.4% over the same month of 2015, a higher bending to 10.03% estimated. Imports fell only 0.40% (compared to -6% forecast), signaling an improvement in domestic demand. However, since the beginning of the year, exports fell 30.7% while imports fell 30.10%. Despite the various stimuli of the Beijing authorities, the Chinese economy is still no sign of acceleration.