World Stock Indexes Trading - page 16

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The Chairman of the Fed has been, within the executive committee, the more conciliatory with the financial markets, and the one whom have shown more prudent in relation to a change in monetary policy.
 
Today, US markets will be closed, celebrating the Memorial Day. On this day are reminded Americans who have died in all military conflicts since the Civil War. This date marks the beginning of the period in which Americans begin to enjoy the summer holidays.
 
After a few weeks of under-performance, Chinese stocks were boosted by a Goldman Sachs study that assigns a probability between 50% and 70% of some types of Chinese shares to be included in the MSCI indices. These indices serve as a benchmark for many global managers. So, after being included in these indexes, global managers necessarily have to buy them for their portfolios. In Japan industrial production rose 0.30%, while household spending has retreated to 0.40%.
 
After trading above 50 USD / barrel on both sides of the Atlantic, crude has in recent hours a sharp devaluation. This downward movement is explained by the approach of the OPEC meeting tomorrow (which led some investors to profit taking), the statements of the Minister of the UAE oil (which reports that it is satisfied with the current market conditions, away so the scene of a freeze on production) and the disappointing data of the Chinese economy.
 
During the press conference, Mario Draghi should reiterate that monetary policy remains accommodative. It will be interesting to see if Mario Draghi will mention some risks approaching on the horizon, as the referendum in England (June 23) and the legislative elections in Spain (26 June).
 
On one hand, rising wages increases consumption and reflexively boosts GDP. On the other hand, the increase in wages generates inflation (increasing production costs and intensifying the demand for goods and services), helping the Fed to achieve the desired 2%. Thus, the two main employment report variables will be job creation and change in wages. Most likely, it is sufficient that only one of the two variables increase to reinforce the likelihood of an increase in US interest rates. Even if there a significant reduction in employment but accompanied by a rise in wages, the Fed may consider that the conditions for a rate hike are met. This position is explained by the fact that the lack of job creation is due not to a decline in economic activity but the lack of people available for hire without a prior increase in wages. In other words, such a scenario could mean that companies would be forced to pay higher wages to hire new employees, thus triggering the positive effect desired by the Central Bank. The employment report also deserves a note of warning. The reaction to its publication may be volatile to the extent that their numbers may be adulterated due to the strike by 36,000 employees of Verizon. Many of these workers (who are paid weekly) may not have received their salary and as such may be statistically treated as unemployed.
 
Although the unemployment rate is very sensitive to statistical adjustments, a decline as steep unemployment in weak job creation scenario is a rather contradictory combination. The only certainty that stemmed from this report is that wages continue to grow (0.20% monthly; 2.50% in annual terms), confirming the trend of recent months. The main reading from this report is that increases uncertainty about the future of monetary policy in the US. This indicator raises the question whether after this data (which should probably be revised upwards next month) is sufficiently striking for the Fed to postpone a possible rise in interest rates at the July meeting. Although these figures decrease the likelihood of an increase in interest rates, increase the uncertainty in the current environment and the uncertainty is the worst threat to the financial markets. Investors fear over an uncertain and unknown factor than a negative factor already know. In this context the intervention of Janet Yellen in Philadelphia (17h30) will be closely followed.
 
Beyond the issue associated with the future of interest rates in the US (and its impact on the Euro), European investors will begin to give increasing weight to the referendum on the United Kingdom staying in the European Union, to be held on 23 this month. After a great advantage in favor of permanence, recent surveys point to a minimum differential between the two camps. In addition to surveys, investors have monitored the odds that the bookmakers have assigned to each scenario. Another barometer is the evolution of the British Pound. An appreciation of the British currency may indicate a greater likelihood of victory to the "Remain in EU".  The reverse case provide an opposite conclusion.
 
Chinese economic indicators support the decision of the IMF, the OECD and more recently the World Bank to reduce estimates for global growth. Yesterday, the World Bank said it expects the world economy to grow only 2.40% in 2016 compared to the previous 2.90%.
 
In the pre-opening, European indexes traded with slight losses. Despite the rise of Wall Street, European equities should be conditioned by the weakness of the Asian session and the fact that the Euro is being traded near 14.01 against the dollar. The recent weakness of the dollar, the result of uncertainty about the future of interest rates in the US, had a positive impact on oil, gold and other commodities, which could ensure an early stage over-performance in oil and mining sectors. The referendum in the UK will have an increasing role in investors’ decisions especially if the result is still uncertain. Today at 8:00 am Mario Draghi will inaugurate the Brussels Economic Forum, an event where diverse personalities of the political, economic and financial world will be present. These events are always an opportunity to sound out the feelings and perspectives of some of the key players in the current environment.
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