US markets extended their recent rally, managing to finish on high for the 3rd consecutive week. Despite the oil drop and the results that have been presented have not been very exciting in terms of revenues, most of the S & P sectors closed higher. One reason for the Friday climb was the need for many fund managers follow the rise of the benchmarks. Another reason was the fact that the S & P have overcome a major area of resistance of 2020, which triggered purchases of many quantitative models of trading. Despite these reasons, the earnings season continues to be the main topic on Wall Street.
Mario Draghi is a skilled manager of expectations and an excellent communicator with the financial markets, even to have a greater effect than the disclosure of corporate results and economic data.
According to a statistical study conducted by Asbury Research, the last week of October is usually, since 1957, the worst stock market week of the 4th quarter and one of the worst of the year.
In short, yesterday's Fed statement challenges the prevailing perception in the financial markets (and especially monetary) that there will be no increase in interest rates before the year end, which had been one of the catalysts rally in stock market indices in October.
The statement from the Fed lead investors to focus again on major economic issues. The US economy suffered a sharp slowdown in Q3 to grow only 1.50%, significantly less than the 3.90% observed in the previous quarter. Estimates of economists pointed to an increase of 1.60%. However, this variation is less serious than it appears. The economic slowdown was mainly due to the sharp fall in inventories (almost 50%). This effect is equivalent to about 1.44% of the economy. This is likely to be temporary in that, depleted inventories will need to be replenish in the coming months, thus making a positive contribution to GDP.
The technology sector may benefit from the Nasdaq that have approached the maximum of the last 15 years.
In China, investors reacted with enthusiasm to the PMI index, which have reached 52.0 in October, the maximum of the last 3 months. Furthermore, the positive sentiment was reinforced by the words of President Xi Jiping. The President of China stated that the annual growth of the country will not be lower to 6.50% over the next five years. Additionally, it was revealed that the President of the Central Bank of China wants to establish a closer relationship between Shenzhen and Hong Kong exchanges, which will enable greater access to investors resident in the latter square the Chinese stock market.