Dax 30; Ftse 100; SP 500 - Market View

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The Governor of New-York Fed, said that conditions in financial markets and the global economy serve as compelling evidence to the US economy, with the same effects of a rise in interest rates. Investors interpreted the words of William Dudley as a lower propensity of the Central Bank to raise interest rates at its next meeting in March.

 

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Despite the recent acceleration, wages are not fully mirroring, the improvements in the labor market.

 

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With closed Asian markets, oil prices should capture the attention, and the trading volume should be more restrained. In terms of consolidation movements, the French retailer Casino has agreed to sell a majority stake in the Thai operator of supermarket Big C Supercenter by 3,100 M €, excluding debt to the Thai TCC Group. On the other hand, the Air France KLM said passenger traffic grew 3.20% in January, while the traffic loads decreased 6.40%.

 

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It looks like european stocks are heading for 2013 low.

 

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In recent sessions, European equities have been under strong selling pressure and since the beginning of the year have recorded a underperformance compared to their US counterparts. The reasons for this pattern are several. The first is that the European economy is far more exposed to China than the US. Another reason has to do with the resurgence of fears about the banking sector in different European countries. Another cause of selling pressure on European equities is that in December these equities are the first choice of global investors who had overexposure to European equity indices, justified by good economic prospects and the expectation that the ECB will implement further monetary stimulus measures. When earlier this year as risk aversion increased significantly, global investors rushed to reduce their exposure to equity markets and consequently those in which they held a greater exposure.

 

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The banking sector will continue to be the protagonist of the European session. Until last week Italian banks had been chosen as a representative sample of the sector, but at this stage that role was taken over by Deutsche Bank. The bank’s activity has been penalized by restructuring costs and the legal costs associated with the various processes in which the bank is or was involved, the costs associated with greater regulation and also by the low levels of interest rates. In addition, investors will monitor developments in the oil and also the testimony of Janet Yellen in the Senate (15:00).

 

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At a time when many investors and economists fear a potential recession in the global economy, the publication of the preliminary reading of the Eurozone GDP gains greater relevance. Compared to the previous quarter, the Eurozone economy will have grown 0.40%, which would put the annual increase in 1.50%. Underpinning this growth was essentially domestic demand and to a lesser extent investment. These items should have offset the slowdown in exports due to the weakening of China and other emerging economies. For 2016, estimates point, on average, for an increase between 1.50% and 1.80%, helped again by domestic demand, which should be underpinned by low interest rates and the fall in unemployment and fuel prices. The main risks are the economic slowdown in emerging countries, especially China, geopolitical tensions and volatility in financial markets.

 

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At a time when many investors fear about the growth of the American economy, because of the weakness of other economies, the signal given by retail sales is comforting for two reasons. The first is that retail sales account for about a third of private consumption, which in turn corresponds to 70% of GDP. The second is that after several months, the American consumer seems to have a greater propensity to consume, justified by the increase in wages and the positive effect of fuel price drop in their disposable income.

 

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If several central banks engage in negative interest rates, we will be able to watch a currency war in which each country tries to devalue the most of their currency in order to gain a competitive advantage in terms of exports.

 

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A freeze on production will not generate a profound change in the supply/demand relationship for crude, but is a stabilizing base to its price. However, many investors argue that this agreement was less than expected (it was agreed a freeze in production but its not a cut), and they also had shown skeptical if this freeze will be extended to other countries and if it will be fully met. Despite all this engaging, at this stage, European investors seemed more focused on the banking sector yesterday which was once again penalized. Last week, Deutsche Bank had been a kind of “health” barometer of the European banking system, but surely doesn’t seem to be a reliable sample of this same system.