Stock Markets – Daily Note – 25 Oct

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 slight losses. One issue that may gain greater weight in the coming sessions is the influence that the bond market may have on stock markets. Yesterday in the US, 10-year yields in the US exceeded 2.40%. Since April 10-year interest rates could not exceed 2.40%, which has served as a barrier to any rise. However, with the passage of the Senate deficit law and with the increasing likelihood that John Taylor will be named the next President of the Fed, there has been an upward pressure on yields. Most likely, it will only be after the ECB’s meeting tomorrow that it will be possible to see whether yesterday’s movement in US yields signals the beginning of a medium-term upward trend. If this happens, not only does it increase the likelihood of a generalized rise in US yields, but it may also spill European yields. Evidence of this contagion will be given when the 10-year Bunds yield exceeds 0.50%.

The US indexes ended the session on the rise, with the Dow Jones reaching stronger gains. The main theme of the session was once again the Earnings Season, which continues to run with a positive trend. 3M and Caterpillar, which were the most significant companies that reported their quarterly accounts yesterday, posted good results. 3M reported an EPS of 2.33 USD that surpassed the anticipated 2.21 USD. The conglomerate showed a 6% increase in sales (partly favored by exchange rate effects resulting from the depreciation of the US Dollar), which reached 8172 M.USD against 7709 M.USD expected. The largest increase in sales was achieved in the Asia / Pacific region, while at the level of the various industries where the company is present, the sales of electronic products and related to the production of energy stood out. 3M shares were valued at 5.91%. Caterpillar reported earnings and revenues that beat the estimates due to strong demand from US oil companies and Chinese construction companies. Carpillar raised its targets for this year, a decision well received by the market and which led to a 4.98% appreciation of its shares. Mention is also made of the good results of McDonald’s and General Motors. To notice the bad results of Whirlpool (the world’s largest manufacturer of home appliances) and the pharmaceutical company Eli Lilly. Meanwhile, rumors have surfaced in Washington that President Trump will have consulted Republican Senators on what would be the best choice to succeed Janet Yellen as president of the Fed. Yellen’s term expires in February and generally the appointment of the President of the Fed is a personal choice of the President, which will later have to be rectified by the Senate. The main candidates are Fed Governor Jerome Powell and Stanford Professor John B. Taylor. Apparently, the favorite of Republican senators is John B. Taylor.

Asian markets closed mostly with contained gains. The only exception was the Nikkei that ended with reduced devaluations, disrupting a series of 16 consecutive positive sessions, something which never occurred before. In fact, the previous record was 14 consecutive positive sessions and had been observed in the 1960’s. A very generous fiscal policy coupled with an ultra-accommodative monetary policy has attracted several buyers to the Japanese market. At the domestic level, many private investors and pension funds have been exchanging bonds for shares, while foreign investors have once again chosen the Japanese market as their favorite in the region.