Ger30, UK100 and SP500 are CFD’s, written over the Dax30, Footsie100 and S&P500 Index futures:
In pre-opening, European indices were trading higher. The behavior of yields will be the central theme of the day. Last week, German Bund yields surpassed the 0.50% resistance. If interest rates do not return to levels below this barrier in the next sessions then a more significant movement of German yields can be seen, which is expected to spill over into other European interest rates. In this context, the ramifications in the stock markets should be multiple. Among them are:
(1) Underperformance of the most defensive sectors, the most sensitive to yields
(2) Underperformance of companies with higher debt (and here may be included some more cyclical companies)
(3) Overperformance of the banking sector if the rise in long-term yields is higher than the increase in short-term yields. However, falling bond prices will hit banks’ portfolios.
(4) Some more conservative investors (such as pension funds and insurers) may be attracted to higher yields, buying bonds and selling shares.
US indices closed at a sharp end, reflecting the indications given by the employment report. In June, the American economy generated 220 thousand new jobs, surpassing the 179 thousand estimated by the economists. In addition, job creation for April and May (which had disappointed investors) was revised upwards, in a combined aggregate of the two months of 47 thousand jobs. The unemployment rate remained at 4.40%, slightly higher than the 4.30% anticipated by economists. The oil sector was one of the few that ended in negative territory. Crude finished with losses close to 3% in the face of continued evidence of continued supply growth. On Friday, the US Department of Energy said that production rose 1% on a weekly basis after some shutdowns caused by the closure to maintain some oil exploration and some platforms in the Gulf of Mexico. Simultaneously it was reported that OPEC exports increased for the second consecutive month. The S & P recovery on Friday made the technical situation of the index more complex (and more interesting). On Thursday, the S & P had broken the important support of the 2417. However, this move was not confirmed the next day, so it can not be excluded that it could have been a false alarm signal. The sessions of today and tomorrow will bring more clues on this subject.
Positive signs given by the US employment report boosted Asian indices. The US and US consumers are important customers of the Asian economies’ exports, so the employment report has a direct and relevant impact on the respective exchanges.