Market View; World Stock Indexes & Trading Journal - page 17
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The US economy expanded at a slower pace than expected in the fourth quarter with the slowdown in corporate investment. A fall in government spending and a trade deficit growing took shine to greater gains in consumer spending over the past nine years. Gross domestic product grew at an annualized rate of 2.6%, after a 5% gain in the third quarter, which was the highest level since 2003. The estimate of economists pointed to 3%. Although the American economy is the most dynamic among the main economic regions of the world, some factors have weighed on US actions. One such factor is the strength of the dollar which reduces the competitiveness of US companies as well as the amount of revenue they generate in foreign markets. The companies in the SP500 have a very broad geographic exposure, making them sensitive to this factor. The second factor has to do with monetary policy. Although the FED proves “patient” (in the words of the central bank itself) in relation to rising interest rates, investors know that the trend is for monetary policy to be less accommodating in future. This trend contrasts with that observed in other economic areas such as Japan and Europe. Perhaps this is the most important factor to the extent that monetary policy the Fed was the main catalyst for the bull market started in 2009.
China’s PMI index on manufacturing activity fell in January to 49.8, below the 50.0, thus signaling an industry in a contraction phase.
If the appreciation of the dollar has had a negative impact on profits and revenues of US multinationals, the weakness of the Euro should have benefited European companies. The devaluation of the Euro not only increases the competitiveness of European companies and increases the amount of revenue generated there. The big question is whether the positive effect of Euro worth the still fragile domestic demand in the euro area and the economic slowdown in various parts of the globe.
One of today’s session topics will be the recent rise in oil. The oil recovery is based on several factors, from fundamental and technical nature. In recent weeks, there have been several indications that the offer is to adjust to new market conditions. Several oil companies in the presentation of results have reported that will reduce investment in the coming years, which will reduce the production along the time. Another sign was given by the CEO of BP who said that the production of shale oil (extracted oil shales surface) in the US has experienced a sharp drop, and closed dozens of wells every week in states like Texas, the Dakota North, etc. The production of oil shale in the US was the main cause of increased oil supply in the last 3 years. From the technical point of view, a very common strategy among hedge funds in recent months has been selling futures on oil. This type of strategy has been so popular that the level of sellers headings (speculative) reached the maximum in recent years. These investors may be tempted to close their selling positions to a minimum oil sign of strength, materializing the gains achieved with the downward movement of crude oil. The rise in crude should continue to boost the related sector but also affects many other raw materials. Because oil is one of the most traded commodities, their movements influence the price of copper, aluminum, zinc, etc. Thus, the mining sector could also stand out in the early hours of the session. The value of crude oil and the recovery of the Euro may generate an underperformance of the DAX. The reason for this possibility relates to the fact that the German index, one of the best performers this year, doesn’t have any oil company among its members, and a significant portion of its constituents have a high export exposure and thus a negative correlation with the Euro.
Today the ECB published its newsletter, which is no longer monthly and went on to be released every 6 weeks, which describes in detail the Euro Zone Economy. The European Commission (EC) predicted growth for all EU countries in 2015 for the first time since 2007. The EC raised its forecast from 1.1% to 1.3% of GDP for the year 2015, and from 1 , 7% to 1.9% in 2016. the commission said the growth was 0.8% last year. The unemployment rate is expected to fall from 11.3% to 11.2%. In regard to inflation, the EC predicted that consumer prices come down 0.1% this year, after an increase of 0.4% in 2014, but predicted to grow 1.3% in 2016.
Yesterday American indexes closed high, having been influenced by the same factors that marked the previous session: the evolution of oil and business news. The merger and acquisition news continues to animate Wall Street. The shares of Pfizer appreciated after the company announced its intention to acquire Hospira company specializing in the manufacture of biosimilars. Weekly applications for unemployment benefits last week amounted to 278,000, less than the 290,000 estimated. In the last two weeks, this indicator reached levels close to the minimum of the last 15 years. On the other hand, the trade deficit rose unexpectedly in December to its highest level since November 2012 (46 600 M.USD) due to the increase in vehicle imports and a decline in exports. In recent days have been disclosed some economic data pointing to a slowdown in the US economy. These signs have disturbing contours considering the large number of areas of the globe which cross a delicate economic phase. These less solid economic data shook the oasis of status that the US enjoyed until a few days ago. The employment report comes somewhat alleviate the negativity of the latest data, as announced the creation of 257,000 jobs, exceeding the 230,000 estimated by analysts, which corresponds to an above-average number of 2014 (240,000) and stock indexes should react positively.
Presidents’ Day, is a federal holiday held on the third Monday of February and the US markets will be closed. Since 1990, the SP500 closed on the eve of this holiday downwards by 81% of the time.
Price is King!
We should realize that the initial analysis is only a starting point for moving in the right direction. From there, it’s really a matter of seeing what the market is willing to give. The truth is the price level at which negotiates an asset in the given moment, regardless of what we would like to see.
Trend following!
People feel most comfortable in a congestion or a consolidation area, but this may be the most dangerous place to be. So it would be logical to conclude that trading outside the comfort zone shall be the safest and correct one.
Today’s meeting of the Eurogroup assumes crucial importance, after the impasse lived at the meeting last week. The ceasefire agreed in Minsk took effect yesterday, so the next few weeks the financial markets will observe its implementation. The molds of this ceasefire resemble the agreed in September 2014 and it is recalled that in the days that followed this agreement financial markets were quite sensitive to any rumors or news from that area. The movement of European stock markets should only be conditioned by news and events in Europe and the Asian markets, since today the US market will be closed.