World Stock Indexes Trading - page 9
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So far, about 58% of the DJ Stoxx 600 components have reported their quarterly accounts. Although a slight majority have managed to surpass analysts’ forecasts in terms of profits, with respect to revenues only a minority has been able to exceed forecasts.
US markets ended with contained variations, managing to recover from early losses justified by the sharp fall in oil and the weakness of the US markets. The Dow Jones was losing 266 points and closed with a rise of 53 points. Oil price suffered a selling pressure, with investors showing their disappointment at the fact that Saudi Arabia eliminate the possibility of a cut in production and some skepticism regarding the freeze on production capacity to balance the relationship demand / supply . The session key moment occurred when the Department of Energy revealed that the oil reserves in the US rose by 3.5 million barrels last week compared to the envisaged increase of 2.42 million. However, the sharp drop in petrol stocks (-1.6 million barrels vs 0.73 M million) contributed to compensate the early fall. Additionally, the Association of American Railroads reported that crude oil transported through this route declined for the third consecutive week, confirming recent evidence that US oil production continues to decline, albeit slowly. Last year, in face of oil price fall, shale oil extraction companies adopted a series of measures in order to protect their business. These measures include the closure of oil wells with lower productivity, reduction in non-operating costs, renegotiation with banks of borrowing and the implementation of financial hedging strategies, which protect the oil price fall. However, at this stage, the potential of reducing costs both financial and non-operating is limited and the use of financial instruments for protection against a further drop of crude oil is very expensive. Thus, in recent months there has a closure of many oil fields, especially smaller ones.
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At the macroeconomic level, household consumption increased to 0.50% in January, exceeding the forecast of 0.30%, supported by rising wages which boost household spending. The increase in house prices also contributed to an improvement in consumer confidence. The approach of the preferred measure of inflation from the Fed to 2% raised some concern in many investors but the money markets, which are an excellent barometer of the reference rates, assign a probability of 57% to a rise in interest rates in 2016. The US GDP for the 4th quarter was revised upwards from 0.70% to 1%, against economists’ forecasts of an increase of only 0.40%. In addition there has been a minor fall in investment and a decrease in the trade deficit. Domestic consumption, which represents 70% of the economy, was less dynamic than expected (2% vs 2.20%) due to lower sales (in value) of fuels (due to falling prices) and clothing as a result of mild weather in November and December. The trade deficit increased from 61500 M.USD in December to 62200 M.USD in January. This was the highest level since June. The confidence index of consumers, as measured by the University of Michigan, reached 91.7, above the first reading (90.7) but lower than the 92.0 recorded in January. From a technical point of view, today’s session and probably also tomorrow will be particularly relevant. If these days, the S & P can not be located convincingly above the zone of 1940/1950 then is increased the possibility of a short-term correction.
Stimulus boosted stock markets, emerging currencies and metals.
Main European indices such as the DAX and the CAC, broke their resistance zones, even before the S & P. With this move strengthened the probability of these indices to test new resistance (9900 in the DAX and the CAC in 4423/4466) in the coming days. One should notice that due to high volatility the occurrence of erratic movements in an underlying trend should occur frequently.
In recent weeks, the position of hedge funds has been changing. Until mid-February, these funds mainly held selling positions on oil, but in the last two weeks not only the pace of closure of these positions increased as some hedge funds began to get long on crude oil, which reinforced its upward movement.
At this stage, the money markets allocate a modest probability (63%) to a rise in interest rates in 2016, which has given some encouragement to equity indices. In conclusion, the ideal for the equity markets would be that the indicators describe an American economy far from precipitating a recession but not so dynamic to raise a sharp rise in interest rates.
American indices closed higher, as investors reacted positively to the employment report, which described a very dynamic labor market but that implies an increased risk of a rise in interest rates. The employment report allayed, at least temporarily, investors’ fears in relation to a US recession scenario. In February, the US economy generated 242,000 jobs, which add up over 30,000 resulting from the upward revision of the readings from December and January. The unemployment rate stood at 4.90%, recording no change facing January. Economists had anticipated the creation of 195,000 jobs and an unemployment rate of 4.90%. However wages fell 0.10% in February. In this context, where rising wages in recent months is interrupted, the decline recorded in February may lead the Fed to take more caution before raising rates. Another consequence of the employment report was that some economists began to revise upwards the estimates for the 1st quarter of this year. Generally, this period is the least dynamic of the year. According to the econometric model of the Fed Atlanta, US GDP is expected to grow 2.20% in the 1st quarter instead of the 1.90% previously estimated.
The most recent economic data in the US exclude the scenario of a recession in the country, so there is no risk of an abrupt descent. On the other hand, despite a flexure in the first months of the year, the European economy continues to grow, sustained by domestic demand, and fuel consumption shall not decrease.