Dax 30; Ftse 100; SP 500 - Market View

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As it did last week, the evolution of American markets should dictate course and sentiment in Europe. Another issue that global investors will be debating is the growing tension between Israel and Syria. On Saturday, Israeli aviation carried out several attacks on the border separating the two countries, and Syrian forces reinstated, shooting down an F-16. The civil war in Syria has been the scene of the intervention of two superpowers (US and Russia) and various regional powers (Iran, Turkey and now Israel), all pursuing different goals. Thus, the possibility of an incident between these actors is a real threat. Added to this scenario is the war in Yemen, the dispute between Qatar and several Arab countries, making the Middle East one of the most delicate and unstable regions on the globe. Considering that the region is also the largest oil producer in the world, then any negative event has the ability to boost crude oil prices. In recent sessions, oil has suffered sharp losses due to strong sales by hedge funds.

 

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On Friday US markets ended up in a session that was again marked by high volatility, thus completing the worst week for stock markets since January 2016. During the session, the S&P ranged from a loss of 1.80% to a appreciation of 2.10%. The magnitude of the S&P oscillation becomes sharper when compared to the fact that in 2017, the American index recorded about 150 consecutive sessions with oscillations of less than 1%. The day was totally dominated by market factors, which replicated the movements of the previous sessions. During the day, there were some selling associated with automatic programs and the foreclosure of positions held by investors who had resorted to financing to buy stocks. Also during the day, there was a buyer interest, a bit hesitant, but that prevailed in the last half hour of the session. The recovery at the end of the day is positive, but it is still not enough to assert, always with a dose of uncertainty, that marked the end of the recovery. It was not yet possible to identify who were the buyers who conducted the indexes to positive territory in the last part of the day. There is an aphorism on Wall Street that indicates that markets never touch the lows on Fridays. However, from a technical point of view, for a recovery to gain a more solid and lasting dimension, it would be important for the S&P to close, with a strong volume, above 2638 (which corresponds to Friday’s high).

 

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With the positive performance of the banking sector, the US market recovered from the initial losses. This negative performance at the opening was spurred by the publication of data on inflation relative to the first month of the year. The consumer price index rose 0.50% in January (the highest increase in the last 5 months), up from the 0.30% expected by economists. In relation to the same month of the previous year, inflation remained at 2.10%, but exceeded the expected 1.90%. On the other hand, the so-called core inflation (which excludes the most volatile goods and is the most considered) also surpassed the estimates, when it stood at 1.80% in relation to the same period of 2017. As far as wages are concerned, quite relevant in recent times, there was an increase (adjusted to inflation) of only 0.80%. Retail sales for the same month were also known, which fell by 0.30%, the biggest drop in almost a year and compared to an estimated increase of 0.20%. If we exclude car sales, retail sales have remained unchanged.

 

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The US market was trading higher, with indexes trying to reach a series of 5 consecutive days in positive territory. Attentions have been focused on macroeconomic indicators. Yesterday the data on inflation were announced and today the number of weekly applications for unemployment benefit has been published, which increased from 7,000 of the lows of the last 45 years to 230,000. In the business field, Cisco Systems was advancing more than 3% after having reported results higher than the estimates. For the first time in more than two years, the company has seen an annual increase in revenues.

 

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In the United States, the recovery initiated in the last 5 sessions and that has allowed the recovery of the market after the recent correction, remained on this last day of the week. Today’s macroeconomic agenda has been filled with some relevant indicators. Regarding the real estate market, the houses under construction during the month of January registered a 9.70% increase, above the expected 3.50%, as well as construction permits which also showed a very favorable evolution (7.40%) and surpassed the expectations that pointed to a zero variation. On the other hand, the consumer confidence index, as measured by the University of Michigan, stood at 99.90, against the expected 95.50.

 

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European markets closed lower, retreating from gains made last week. The volume of trading was lower than usual, given the closing of the North American Stock Exchange, reason why the movements ended up having a greater weight. Most of the sectors traded in the negative, with the losses being led by car manufacturers and pharmacists. Daimler fell 2.08%, after news that it may have used software to tamper with gas emissions. Reckitt Benckiser reported quarterly results and raised forecasts for 2018. Investors, however, attached great importance to moderate potential in terms of operating margin growth, so their shares fell more than 7% . In the banking sector, Deutsche Bank stood out positively (2.11%) after Bank of America Merrill Lynch raised its outlook for the stock and target price.

 

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Most European stock markets ended up with almost all sectors showing gains. The London market was an exception, with the main FTSE 100 index showing a slight loss (-0.03%). The session was essentially based on the reaction of investors to some published results. Billiton recorded a devaluation of more than 4%, penalizing its sector. The mining company reported a semiannual profit amounted to 4050 M.USD and EBITDA to 11240 M.USD. Both numbers fell short of the 4340 M.USD and 11580 M.USD estimated by analysts. On the positive side, the proposed dividend is $ 0.55 per share, more than the $ 0.48 anticipated on average by analysts. In the banking sector, HSBC was another title that conditioned the performance of the British index (-3.35%), after presenting its results. The bank reported an adjusted annual profit of 20 990 M.USD that surpassed analysts’ forecasts for a net profit of 19,670 M.USD. Contrary to analysts’ anticipation, HSBC did not announce a stock buyback program, relegating that announcement “when appropriate.” In 2016, the bank bought a total of 5500 M.USD in its own shares. In Paris, Edenred rose more than 6%, after having reported strong results, with EBITDA and profit for 2017 surpassing the estimates.

 

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Considered the largest retailer in the world, Walmart reported a adjusted EPS of 1.33 USD, which fell short of the estimated 1.37 USD. Revenues amounted to 136 300 M.USD, which exceeded forecasts of 134 900. But what displeased investors was the evolution of WalMart’s efforts to compete with Amazon in the e-commerce market. WalMart’s online business growth rate of 23% is small compared to the 40% recorded by Amazon. WalMart shares fell by 10.20%, the biggest daily drop since January 1988.

 

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One day after the minutes of the last FED meeting were published, the US market was trading higher, with attention focused on the economic indicators reported and the interventions of some Fed members. The number of weekly applications for unemployment benefits decreased by 7,000 to 222,000, thus reaching the 2nd lowest level since the end of the 2007-2009 recession. The forecast was for 230,000. On the other hand, the advanced indicators of the economy registered an increase of 1% during the month of January, compared to the estimates of 0.70%.

 

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Last Friday US market traded bullishly, though on a weekly basis it was headed for losses. Hewlett-Packard shares rose about 10 percent after having reported quarterly results and future prospects that pleased investors. In terms of the debt market, 10-year TO yields, which peaked at the beginning of the week in the last 4 years, were now down to around 2,875%.