Ger30, UK100 and SP500 are CFD’s, written over the Dax30, Footsie100 and S&P500 Index futures:
Despite the weakness revealed by the American and Asian Stocks, European pre-opening pointed to a positive start. Even so, European stocks may be vulnerable to a reversal of this positive initial trend. One of the standards that has emerged in 2018 is the underperformance of European markets vis-à-vis the Americans. Since the beginning of the year, the Eurostoxx50 lost 3.12% while the S&P500 appreciated 1.47% (and the Nasdaq100 7.32%). As a consequence of this trend and to reinforce it, the position of hedge funds has been in place. According to Reuters, the amount of short sales on European stocks amounts to 188,000 M.USD, one of the highest levels since the sovereign debt crisis in Europe. Some reasons may be pointed out for this strategy. The first is the strength of the Euro, which many investors believe could undermine the competitiveness of European exports, especially in an environment threatened by the specter of a spiral of protectionist measures. Another reason is that, in descending phases of the market, European stocks tend to accumulate losses more expressive than their American counterparts. The correction that the world stock markets suffered in February confirms this trend. Meanwhile, the Trump Administration has taken a more conciliatory stance towards the European Union by providing 5 conditions for European companies to be exempted from the new tariffs on steel and aluminum. But on the other hand rumors circulate in Washington that until the end of this week will be announced new tariffs that will reach a group of Chinese imports, whose value of the goods is of 60 000 M.USD.
US markets closed with sharp losses. The epicenter of yesterday’s downturns was the technology sector. The Stocks of the acronym FAANG (Facebook, Amazon, Apple, Netflix, Google) were penalized by the fall of 6.80% of Facebook shares. The company is being investigated by US and European authorities after a Facebook partner company, Cambridge Analytica, has collected information about its users without its authorization. Cambridge Analytica is a company that collects and processes data about voters and allegedly collected personal information regarding 50 million Facebook users without authorization and reported that it had canceled it. The contagiousness of Facebook’s weakness to shares like Amazon (which is increasingly approaching a retailer) is about the fact that several investors are again questioning whether the price of these bonds did not excessively exceed the value of their companies. As an example, Amazon has a PER (price per share) of 249 against 17 from the S&P500. Even considering that revenues show an enviable growth of 31%, Amazon is a company with a market capitalization of 770,000 M.USD. For a company of this size it is quite difficult to maintain such a high growth rate, more often found in small caps. Thus, whenever unfavorable news emerges for the shares of FAANG, investors return to these questions, as almost all fund managers have an overexposure to these securities. This preference generated a gap between the fundamental value of these companies and their price. Thus, it was enough that these Stocks began to lose some momentum so that the various fund managers rushed to realize some profit taking. At this point it is important to underline that the FAANG Stocks have been the engine of Nasdaq and that this index was the only one to reach new highs after the correction of February. As such, its weakness affects the technological sector, which in turn had been the driver of the rest of the market. Today, investors will, on one hand, continue to monitor the behavior of the FAANG and on the other hand, will begin to prepare to follow the holding of the FED meeting that ends tomorrow with the press conference of Jerome Powell.
The Asian market traded lower, with investors showing some caution in anticipation of the Fed meeting. In addition, the negative performance of the technology sector on Wall Street also put pressure on the market. On the positive side, the banking sector and car manufacturers stood out.