Ger30, UK100 and SP500 are CFD’s, written over the Dax30, Footsie100 and S&P500 Index futures:
In the pre-opening session, European indices traded higher. In the opening hours of trading, investors’ attention will be divided between the aftermath of the ECB’s meeting and the results that were published yesterday in the US after closing and already this morning in Europe. Going back to yesterday’s meeting, the ECB’s decision fell within the expectations already outlined in the preview of this event. In summary, the ECB will:
• Reduce, from January onward, the monthly purchases of 60 000 M. € to 30 000 M. €.
• The asset acquisition program will run from January 2018 through September of that year.
• The ECB will reinvest the repayment of the obligations that will mature into new debt issues, so the monthly amount of purchases should exceed 30 000 M. €.
• Interest rates will remain at current levels even after the end of this program.
In reaction to this decision, the Euro devalued itself (the message, although expected was not severe enough to inspire a new appreciation of the Euro), which favored European stocks. Another factor adversely affecting the common currency was the generalized decline in yields, especially in Southern Europe (the most favored by ECB purchases). As the European yields drop was higher than its US counterparts, the US-European interest rate differential widened to the benefit of the Dollar. The strength of the US currency should weaken commodities, inducing the mining and oil sectors to underperformance. Following the session yesterday, the DAX (the index that most benefits from the devaluation of the Euro) broke the top of the range where it had oscillated in recent weeks (12900-13100). So if the DAX today shuts back above 13100 then the probabilities of the materialization of a new upward trajectory become higher.
US markets closed with contained swings. The day before the optimism regarding the earnings season had suffered a slight shake but yesterday, with the results of Ford and Twitter this positive feeling has been renewed. Only Nasdaq ended lower, with investors taking a cautious stance on the results that would be presented after the close of the session. Twitter and Ford reported results that were very pleasing to investors, with shares of the first company valued at 18.50% and those of the automaker 1.90%. Overall, the results that have been released have surpassed analysts’ forecasts. In fact, of the companies that make up the S & P and that have already reported their quarterly accounts, 74% have beaten the estimates in terms of profits and 65% in terms of revenues. At the sector level, technology companies have been the most “virtuous” in terms of profits, with 88% hitting analysts’ estimates. Real estate companies have been those with the greatest difficulties of surprising the market positively (55%). Concerning the revenues, the mining sector presents the highest percentage of companies that reported sales higher than the estimated (91%). By contrast, the percentage of utilities that managed to exceed forecasts is only 25%. In the bond market, yields continue to rise after they have overcome the barrier (at 10-year interest rates) of 2.40%. This movement, coupled with declining yields in Europe triggered by the ECB’s decision, explained the strong appreciation of the Dollar. This appreciation of the greenback may begin to weigh on some leading technology companies. Not only do these companies generate a significant portion of their revenues outside the US, they have also placed a very significant amount of liquidity elsewhere in the world, which now loses value with the appreciation of the US currency. Today, the opening of New York will be marked by the reaction of investors to the various results that were published yesterday after closing.
Asian markets closed without major fluctuations. On the weakness of Wall Street (which generally affects Asian markets), prudence over the ECB meeting prevailed. By affecting the performance of the yields and the Euro, the decisions of the ECB (the second largest Central Bank in the world) influence Southeast Asian yields and currencies.