Stock Markets – Daily Note – 05/Dec

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

In the pre-opening, European stocks were trading lower in face of the referendum results in Italy. According to the preliminary data, the No won with a comfortable advantage (about 59% versus 41%). As he had anticipated, Prime Minister Renzi resigned. The Italian banking sector and especially the Monte dei Paschi di Siena should be under pressure. Contrary to what happened with Brexit and the US presidential election, the No victory was the most likely scenario for financial markets, so investors had time to prepare. After the first impact, investors will try to anticipate what will be the political developments in Italy. Many unknowns and uncertainties arise with the victory of No, having Matteo Renzi presented his resignation. The referendum in Italy precedes a year full of political events in Europe, with the elections in France, the Netherlands and Germany, in addition to the Brexit which already took place. The best way to measure investors’ risk perception regarding Italy is through the evolution of the country’s banking shares, Italian credit default swaps and the differential between Italian and Spanish yields. While the spread between German and Italian yields not only measures the risk of Italy as well as Southern Europe as a whole, the differential between Italian and Spanish interest rates isolates the “southern Europe” or “periphery” effect and Focuses on country risk.

The American indexes closed without major fluctuations, and the volume was particularly contained. Despite the publication of the employment report, the spotlight on Wall Street was centered on political developments in Europe over the weekend, which explains investors’ expectant stance. In November, the US economy created 178 thousand jobs, in line with the estimated 180 thousand and the average of the last 6 months. The unemployment rate fell from 4.90% to 4.60%, surprising forecasts of 4.90%. By the negative, to highlight the fall of 0.10% of wages. The reading of wages in October somewhat shakes the promising signs seen in the past months. Thus, these data do not change the almost certain rise in central rates at the December Fed meeting but may influence the individual views of its members on increases to be made in 2017.

Asian indices closed lower because of the uncertainty that the outcome of the referendum in Italy provoked. In China, the Caixin PMI index for services was published, which improved from October (53.1 vs 52.4).

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