Ger30, UK100 and SP500 are CFD’s, written over the Dax30, Footsie100 and S&P500 Index futures:
In the pre-opening, the European indices tested in low. The first part of today’s session should have an inverse pattern to that of previous sessions. In recent days, improving trade relations between the US and China had boosted the shares of the most exporting sectors, with the German index being that of companies with a greater propensity for foreign markets, especially China. With the deterioration of the results recently achieved by the two countries, it is likely that these same sectors will lose some of the gains made. Beyond this theme, investors will have to monitor the political situation in Italy and its impact on sovereign yields, not only the Italian yields, but also the Portuguese, the Spanish and even the French yields. In the currency market, recent declines in the Euro have led the common currency to the most extreme oversold levels since November 2016. Yesterday the Euro showed some signs of stabilization, which may be the prelude to a short-term technical recovery. In case this scenario materializes it may cause some pressure on European stocks or at least interrupt its overperformance vis-à-vis its American counterparts. Since the Euro broke the important support of the 1.22, the main European indices reversed the tendency of underperformance against the American indexes and embarked on a powerful rally even in face of the recent yield increases and the political turbulence in Italy.
US indexes closed lower, with optimism about US-China trade relations cooling off. At an early stage, the market continued to fuel this sentiment, after China took another step to reinforce the positive developments of the previous days. The Beijing government has announced that it will lower tariffs on imports of US vehicles from 25% to 15%, which could fall further to 6% for some car components. While the positive effects of this decision were mainly reflected in the stocks of automobile manufacturers, the prevailing sentiment in the market was that there was a trend toward normalization of trade relations between the two countries. However, this perception blurred with the statements of President Trump. The President said that the results achieved in recent days are unsatisfactory and far from meeting Washington’s intentions to drastically reduce the trade deficit with China. In fact, despite the gestures of goodwill demonstrated by the US and China, the measures announced in recent days are not very significant in the light of the Trump Administration’s objective of reducing the trade imbalance with China by 200 000 M.USD. The most recent estimates indicate that the US has a trade deficit of about 323,000 M.USD with China. Investors’ attention will now be divided between the evolution of yields and oil and possible developments regarding the trade relationship between the US and China. In relation to yields, it is likely that they will show some volatility when the minutes of the last FED meeting are published.
Asian markets closed lower, with investors again voicing concerns about China-US relations. In a context in which international trade may be affected by the dispute between the two largest economies on the globe, external competitiveness is gaining in importance. Thus, the appreciation of the Yen penalized the Nikkei, as a strong currency makes Japanese exports less competitive.