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. After recovering at the end of last week, European markets begin to show some weakness. We are witnessing to the purchase of assets considered safe (German bunds and US bonds, gold and assets denominated in Yen and Swiss Franc), while the Pound continues to reach lows against the dollar. In England, three funds dedicated to the real estate market suspended the possibility of its subscribers to withdrawals. The surrounding European policy, marked by uncertainty in the United Kingdom, Spain, Austria and Italy had risks that apparently the financial markets were not considering in full. It was not noticeable if last week’s rise had been a technical reaction to the falls of the post-referendum days or mirrored one complacency of investors to the risks mentioned. An earlier note mentioned that from a technical point of view and using the DAX as a sample for the European market as a whole, the main resistance zone was between 9720 and 9780. Last week, the DAX reached 9810 before declining. The Brexit effects are not yet fully visible, but at this stage the referendum showed known issues, including the delicate situation of some Italian banks. With the earnings season in the US approaching, the possibility of investors give greater emphasis to the exposure of American companies to the Euro zone, recalling that in the last 4 quarters, corporate profits have been declining.
After being closed on Monday, US indices closed with losses close to 1%, and investors on Wall Street reacted to the losses suffered by European markets in the last two sessions. The default session was very similar to that seen in Europe, with investors to dispose of shares and corporate bonds, exchanging them for assets considered safe. In currency markets, there has been an appreciation of the dollar which penalized the price of most commodities, with the exception of Gold and Silver. In addition to the pressure on the oil and mining industries during the session yesterday observed the weakness of the banking sector and the technology sector. The latter has a high exposure to Europe and was also penalized by cutting the estimates of Apple’s profits from Citigroup. The result of the referendum in U.K. makes information the minutes of the last meeting of the Fed less relevant. These documents should emerge the intention of its members to await the evolution of domestic economic situation (particularly the labor market) and the impact of the referendum (which at the time was unknown). Perhaps the most interesting is to know what were the factors that led some members to reduce their projection concerning the number of increases in interest rates in 2016.
The weakness of the European and American markets affected Asian equities, in a strong risk aversion context. So investors have increased their exposure to safe haven assets such as US Treasury bonds, gold and the yen. The appreciation of the currency represented an additional factor of pressure on Japanese stocks, especially those of exporters.