Ger30, UK100 and SP500 are CFD’s, written over the Dax30, Footsie100 and S&P500 Index futures:
In the pre-opening session, European indices tested higher, favored by the performance of the US market and the outlook for the new Earnings Season that starts today in the US, with the disclosure of the figures of three of the largest financial institutions. Meanwhile, investors continue to monitor developments in trade tensions between the US and China.
The American indexes recovered all losses from the previous day. The recovery was led by major technology companies, which allowed the Nasdaq100 to reach a new all-time high. This feat was largely allowed by the behavior of Amazon and Facebook, two stocks of the acronym FAANG, which reached new historical highs. Boosting US markets was the investor’s optimism about the earnings season, but also the calming after Trump’s new presidential threat (of taxing 200,000 M.USD of Chinese imports). Investors had been expecting a “muscular” response from China, but the response of the Chinese authorities was particularly balanced. US indices have shown quite volatile behavior at this juncture, but at the same time have been quite resilient. Notwithstanding all the risks presented by the conjuncture, the main American indexes are close to the highs or even, in the case of Nasdaq1100, at historical highs. In the long run, it is business profits and interest rates that dictate the course of stock markets. With the yields situation relatively calm, it is to monitor the business results. Today, the earnings season officially begins, with the quarterly accounts of some of the leading US banks reported. Thus, JP Morgan, Wells Fargo and Citigroup will announce their quarterly results before the market opens. For the banking sector as a whole, analysts expect the results to be strong enough, with earnings growth anticipated at 23%. The increase in profits is justified by the dynamism of the economy, the acceleration of credit, the reduction of regulation and the increasing automatism of various functions, which led to a decrease in costs. However, investors in recent months have focused on the negative factors that have conditioned the sector, which shows a remarkable underperformance vis-à-vis the S&P. The main of these factors is the narrowing of the differential between long-term and short-term rates, or in other words, the decrease in yield curve slope. The other factor that has penalized banking stocks is the specter of a trade war between the US and China. Although some banks have direct exposure to China and / or some countries with strong trade ties with China, investors have focused on indirect harmful effects. Trade tensions between the US and its trading partners cause uncertainty and uncertainty is the biggest deterrent to investment. Thus, many US companies have been postponing their investments until US trade relations normalize. This decision to hold back the investment results in a postponement of the credit applications. Considering that credit recovery after last year’s decline has been based on corporate credit, the impact of trade tensions can be quite significant.
Given Wall Street’s behavior and easing of trade tensions between the US and China, Asian markets extended gains yesterday. The Japanese market led the gains. In terms of economic indicators, between January and June, Chinese exports increased by 4.90% over the previous year and imports grew by 11.50%, so the country’s trade surplus decreased by 26.70% over the same period last year.