Forecast and levels for S&P 500 - page 32

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In terms of economic indicators, the number of weekly applications for unemployment benefits stood at 211,000, compared to 225 000 and then 209 000 in the previous week. The ISM index for the services sector stood at 56.80 compared to the projected 58.00 and the trade deficit reached 49 000 M.USD, below the expected 50 000 M.USD. Factory orders increased 1.60% in March (vs. 1.40% estimated), while orders for durable goods grew 2.60% in the same month.

 
Wall Street was trading higher as investors reacted to the employment report, highlighting Apple's shares favoring stock indexes. The government reported that during April, the US economy created 164,000 jobs, down from 192,000 expected by economists. On the other hand, the increase in average hourly wages also fell short of expectations (0.15% vs. 0.20%). We must remember the importance of this last indicator, since in many economic cycles are the precursors of inflation. The US unemployment rate fell from 4.10% to 3.90% in April, down from 4%. In the business field, Apple rose 3.42%, after investor Warren Buffett revealed that during the first quarter acquired 75 million shares.
 
European markets closed mostly, rising, favored by the weakness of the Euro. The weakness of the European currency has led it to trade at 1.19 against the Dollar, a level not recorded since December 2017. To justify the weakness of the common currency, there is the significant difference between US and German yields and the recent slowdown in the European Economy. In March, orders to industry decreased by 0.90% (on a monthly basis), compared to forecasts of 0.50%. In the first quarter, the German economy was negatively conditioned by factors such as bad weather and a series of strikes that marked that period. During the day, the mining and oil sectors stood out. Crude oil prices gained more than 1% as a result of retracement of the Dollar and the indications that President Trump would be inclined to impose sanctions again not only on Iran but on Venezuela. 
 
Technical traders operate on different time scales, producing detectable signals in price time series, subsequently memory effects are introduced in the price dynamics through a specific figure called supports and resistances. In fact prices more likely re-bounce than cross these values.
 
This recent positive trend US indices is explained by the strong appreciation of the oil sector, as a result of President Trump’s decision to abandon the agreement with Iran.
 
European markets closed slightly higher. The telecommunications sector presented an underperformance, explained by news and results. BT reported quarterly results lower than expected and announced its intention to reduce 13,000 jobs. Its shares fell 7.15%. In the banking sector, Royal Bank of Scotland advanced 3.88%, after agreeing to pay a fine of 4900 M.USD, an amount lower than expected, to close an issue related to the sale of financial products linked to high risk mortgage. 
 
Recently, the evolution of yields has also been influenced by a new variable: the political situation in Italy. Debt markets, after several weeks focused on other issues, have already begun to react. Italian 10-year yields reached 1.94% (the highest of the last 7 weeks) and the differential between Italian interest rates and their German counterparts (the best indicator for measuring the country’s political risk) widened from 1.14% up to 1.37% in just two weeks. FTSEMIB, the Milan stock exchange index, has not yet reflected this perceived risk of the bond market. Stock market investors have focused more on the positive effects than rising yields will have on bank results. The increase in yields may be due to the prospects of higher economic growth (which is positive in the bottom) but may also be due to increased risk aversion. In the current situation, it is this last hypothesis that explains better the movement of Italian yields.
 
European markets closed lower, with most sectors also in negative territory. Among the worst performers were the financial services and telecommunications companies. The price of oil maintained the upward behavior that characterized it last week, so stocks of major oil majors closed today’s session higher.
 
European markets ended today's session in different directions, with investors attentive to political and economic issues. The behavior of the foreign exchange market also influenced the course of the market, and the Euro registered a devaluation against the US Dollar. In sectoral terms, oil companies were among the best performers (still reflecting the recent rise in the price of oil), while the telecommunications sector lost more than 1%. For the banking sector, Commerzbank rose 3.79%, after having reported a quarterly profit of 250 M. €, surpassing the forecasts of 178 M. €. This differential was achieved through lower provisions and a tax credit. Banking income declined 3.70% to 2300 M. €, slightly higher than the forecast of 2270 M. €. In a statement, the bank mentioned the conditions caused by the slowdown of the German economy in the first quarter and by the growing tensions between the US and China. Still in Frankfurt, but as an opposite reaction (-5.82%), ThyssenKrupp reported an EBIT of 500 M. €, substantially in line with forecasts. Profits from steel production, the company's largest activity, doubled over the same period last year. In terms of economic indicators, the GDP of the Euro Zone for the first quarter showed an annual growth of 2.50%, in line with expectations.
 
The behavior of the bond and exchange markets will continue to dictate the course of the European stock exchanges. Yesterday, the strong rise in US yields generated a strong increase in world yields. This increase in interest rates could be strengthened by the increase in geopolitical risk. The intensification of geopolitical tensions has two focuses: the Middle East and the Korean Peninsula. In the Middle East, the situation in the Gaza Strip adds yet another focus of potential conflict in the region. The main difference with similar situations is that Iran has bases in Syria where it can reach Israel and also suffer the attacks of this country. As already mentioned, Syria is a country where several powers intervene with objectives often antagonistic. North Korea's cancellation of talks (threatening the meeting with President Trump in June) could push back steps in the past month. It is not yet known whether this North Korean decision (fomented by joint US-South Korean military maneuvers) is a negotiating strategy or a real retreat in the pacification process of the peninsula.
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