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 contained variations. The positive impact of the Fed meeting and some corporate results should be overshadowed by the appreciation of the Euro, also resulting from the meeting of the Central Bank. After giving some signs of correction yesterday, the Fed’s statement, which fits sharply in investors’ expectations, boosted the common currency. Generally, when a given event fits investors’ expectations, there is a tendency for financial markets to continue, at least in the short term, the underlying trend. This pattern is different from that in which the market expects a favorable factor or event and reacts in advance, so-called buy on rumors sell on facts.
US markets closed with modest gains but enough to drive the Dow to a new all-time high. In a first phase, the main indices were boosted by the good results and the appreciation of oil (which became more significant after the Department of Energy showed a drop in the country’s oil reserves). The good results from Boeing and AT & T confirmed the positive trend in this earnings season. The fact that most companies (around 75%) are exceeding forecasts in terms of profits is not surprising since in recent years this pattern has been repeated (averaging 67%). Most notable is the fact that the vast majority of the components of S & P (about 73%) have managed to report revenues that exceeded forecasts. As expected, the Central Bank left the reference rates range unchanged at 1% – 1.25%. Regarding the process of normalizing its balance sheet, the Fed continued to prepare investors for its start, a mentalization process that has been going on for quite a few months. Unlike the June statement, which referred to the timing of this beginning as “somewhere this year,” yesterday’s statement said it would be “soon enough.” To justify this decision is the Fed’s positive view of the economy. With the economy operating at full employment, with the creation of jobs being labeled “solid” even with the 4.40% unemployment rate, with consumption and investment growing, the Central Bank believes that are gathered conditions to reduce its balance sheet (amounting to 4 500 000 M.USD). The only dissonant point in this macroeconomic picture is the decline in inflation. The Fed has a target of 2% for the price level but in recent months and despite the dynamism of economic activity, inflation has retreated to the current 1.60%. The Central Bank has interpreted this decline as punctual and explained by non-recurring factors (such as the fall in oil prices and the sharp drop in mobile phone tariffs). After the traditional volatility that marked the first reaction to the Fed’s press releases, the stock market appreciated, the Dollar depreciated (with the Euro reaching 1.1750) and yields declined marginally.
Asian markets closed higher, reflecting Wall Street’s positive reaction to the Fed meeting. However, the appreciation of the Asian currencies against the Dollar limited the positive effect Wall Street had.