Ger30, UK100 and SP500 are CFD’s, written over the Dax30, Footsie100 and S&P500 Index futures:
In the pre-opening, European indexes traded in positive territory. The banking sector will continue in the spotlight after Citigroup have raised the recommendation on the sector to “overweight”. In addition, Reuters reports that the German Government is to pursue talks with the US authorities concerning the Deutsche Bank situation. To frame the session today (and perhaps also the near ones) is necessary to go back yesterday, when Bloomberg published an article on the ECB’s monetary policy. According to this article, the Central Bank was considering reducing its financial asset acquisition plan, and this reduction is called tampering. According to the report, the ECB would be to draft a plan to gradually decrease (possibly in steps of 10 000 M. €) its asset purchase program currently at 80 000 M. € / month. This program is scheduled to end in March 2017 and in the market there was the expectation that this period could be extended and possibly increased the amount. However, the intervention of Mario Draghi at the September meeting and some later interventions of a few members of the institution have shaken investors’ expectations. The extremely low level of state yields (in the German case get to reach negative levels) is having negative effects on banks and insurance accounts of this country, as well as some discontent among savers more averse to risk. It is important to remember that the measures of central banks, which has led to a decline in interest rates worldwide, has been the main catalyst for rising stock markets in recent years. Having seen in recent quarters to a reduction of the profits of European and American companies, financial markets dependence on the measures of central banks has generated a constant hope that these institutions shall continue to sustain the rally in risk assets. However, the Fed should raise interest rates sometime in the end of the year or early 2017. For its part, the ECB may gradually reduce its liquidity injection into the financial system. Thus, in term, equity markets will have to find new catalysts to extend the rise in recent years.
US markets closed higher, regaining a significant part of the losses of the previous day. The major indexes were boosted by oil and financial sectors. The banking sector benefited from the rise in long-term yields. The latest economic data have indicated that the US economy is still in an expansion phase. According to the ADP report, prepared jointly by Automatic Data Processing and Moody’s, the private sector generated 154,000 jobs in September compared to the 165,000 estimated by economists. This represents a pushup on the average observed in previous months but not a warning sign. The US economy is close to full employment, so it is difficult to maintain the pace of creation of jobs observed in recent years, unless a large number of people flock to the labor market (people whom previously did not belong to the economically active population). The ISM for services (which represents about 90% of GDP) reached 57.1 in September to the highest level this year, comfortably beating forecasts of 53.1
Asian markets ended higher, given the depreciation of the yen to a minimum of the last month favored the major exporting companies as well as companies in the energy sector.