Ger30, UK100 and SP500 are CFD’s, written over the Dax30, Footsie100 and S&P500 Index futures:
In the pre-opening, the European indices did not show a definite trend. Yesterday, the generalized rise in sovereign yields hit essentially utilities and other more defensive bonds, but the more cyclical sectors, contrary to what was anticipated, gained some value. This was contributed by the weakness of the Euro (which benefits the most foreign-oriented companies) and the positive view that investors have of these stocks. The overperformance of cyclical stocks in relation to more defensive stocks has peaked since the beginning of this Bull Market in 2009. One of the causes of the rally in European markets (in addition to the favorable influence of the American markets) has been the strong appreciation of the banking sector. Within this sector the protagonist has been the Italian banking sector which has shown remarkable resilience to a number of negative factors such as the outcome of the referendum and capital increases of Unicredit and Monte dei Paschi di Siena. Today, the recent volatility, from the bond and foreign exchange markets, may suffer an additional increase due to the maturity of futures and options contracts. The most critical moments are the interval between 10h50 and 11h00 (futures and options expiration on Eurostoxx50) and 12h00 (futures and options on the DAX 30).
Yesterday US markets rallied again after some consolidation. The fund managers continue to monitor the valuation of their benchmark indices and also the subscription of shareholder funds by private savers continues. This pattern is common when stock indexes reach new highs. It is these intrinsic factors that explain the market’s resilience to the prospects of higher US interest rates and the strength of the Dollar. The appreciation of the US currency was pointed out in the previous quarters as the main cause of the weakness of the profits of the American companies. Now, with the dollar climbing to its highest level in the last 14 years against the Euro, these fears about corporate profits do not seem to be expressed. Economic data remain of minor importance as investors focus on the future and on the impact that the economic policies of the future Trump administration may have. The consumer price index increased for the 4th consecutive month, reaching 0.20% in November, a variation in line with the estimate. Core inflation (which excludes the most volatile goods) also stood at 0.20%. In annual terms, core inflation stood at 2.10%, slightly above the 2% desired by the Fed, although the Central Bank used in its decisions the inflation associated with household consumption. With regard to the labor market, the number of weekly applications for unemployment benefits reached 254 thousand, compared to 255 thousand anticipated. The Philadelphia Fed Manufacturing Survey hit 21.5 in December, well above the 9.1 estimated by economists. On the real estate market, the sentiment of the builders also surprised by the positive, having reached the 70.0, above the forecast 63.0. Today, as in Europe, the futures and options contracts known as quadruple witching will expire. The definition of witching is due to the fact that until a few years ago these maturities were simultaneous, which caused volatility well above average and the occurrence of erratic movements. Nowadays, the most sensitive hours are 14h30 (opening) and 19h00.
Asian markets closed without major fluctuations, with the exception of the Nikkei that achieved gains above 0.60%.