Ger30, UK100 and SP500 are CFD’s, written over the Dax30, Footsie100 and S&P500 Index futures:
In the pre-opening, the European indices traded with some gains. In an early stage, the good performance of Wall Street should boost European markets. However, this momentum should be limited by the strength of the Euro. At a time when the Euro appreciates sharply against the US dollar, European markets tend to underperformance with their US counterparts. Despite the dynamism of domestic consumption and investment, European companies continue to have high exposure to external markets. In these economies, many of them going through a less dynamic phase (such as China and on a larger scale to Brazil), the companies of the Old Continent face strong competition from American and Asian companies. The strength of the Euro exacerbates the competitiveness of these companies and also decreases the value of revenues and profits generated there.
US indexes closed higher as Dow Jones and S & P hit a new high. Although the media attention has fallen on the quarterly results of the major banks were the economic data the catalysts of the rise. In the long run, it is the profits and interest rates that shape the stock market trend. In the last decade, due to the strong performance of the Central Banks, interest rates have taken precedence. In fact, for much of 2015 and 2016, business profits declined on both sides of the Atlantic and this did not prevent the major indices from accumulating gains. In June, inflation, as measured by consumer prices, registered a zero variation, contrary to forecasts by economists, who anticipated a 0.20% increase. In annual terms, inflation stood at 1.60%, continuing to decline after the 2.70% observed in February. Contributing to the deceleration of inflation were the prices of fuels and mobile telephony services. Even if the most volatile goods are excluded, core inflation is 1.70% below the 2% recommended by the Fed. Retail sales, for the same month, fell by 0.20%, also contrary to estimates by economists pointing to an increase of 0.20%. The reading of June prolongs the fall of 0.40% registered in May. Retail sales are at the heart of domestic consumption, which in turn represents the engine of the US economy. These indicators contrast with the predominant view in the FED that the economy will accelerate in the second half of the year and that the factors that have caused the inflation slowdown are transient. It is in this sense that the reading of these data constituted the main catalyst for the rise of Friday. These economic data may reflect the best possible scenario for investors, the one in which they can achieve the best performance: an economy growing at a rate capable of stimulating companies to generate profits but simultaneously insufficient to induce the FED to raise significantly the rates of swear. Notwithstanding all that was mentioned, it was the results of the main banks that deserved the greatest media coverage. JP Morgan reported profits and revenues that surpassed the estimates and were based on an increase in the credit grant, which more than offset the sharp falls in trading revenues. This last point was common to the banks that reported their accounts. With the volatility in historical lows and the decrease in mergers and acquisitions, the trading revenues of the main banks resented in the second quarter. Following an initial positive reaction, JP Morgan shares have been shaken by the announcement that the bank expects a decline in lending, which will have a negative impact on its results. This last point shaped the reaction to the results of the other banks: Citigroup and Wells Fargo. Citigroup announced a EPS and higher-than-expected earnings, while Wells Fargo posted a higher-than-expected profit but lower than expected earnings. As we said, trading income at both banks fell in the second quarter. With indexes at record highs and with many investors questioning the core multiples of many companies (which are also at very high levels), the shareholder market for corporate earnings is likely to outpace analysts’ forecasts.
Asian markets closed without a common trend, despite Wall Street’s strong performance. The Tokyo Stock Exchange was closed and the Day of the Sea was celebrated. At the macroeconomic level, in the second quarter of 2017, the Chinese economy grew 6.80%, surpassing the predictions of 6.70% of economists. This variation is also higher than the target of 6.50% designated by the Beijing Government. However, the calculation of the economic aggregates by the Chinese authorities is always received with some caution by Western economists. This caution is due to the fact that the methods used are not always equivalent to those practiced in Europe and the USA, and that data relating to the public sector are not always based on purely economic factors.