Dax 30; Ftse 100; SP 500 - Market View

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European markets started the week on an upward trend, with the exception of the London stock exchange that closed slightly lower. In the business context, the highlight is the news about the merger of two of the largest companies in the German energy sector: EON will buy Innogy, RWE’s renewable energy company, thus becoming owner of the retail and energy transport units of both companies, while RWE will keep the renewables business as well as part of EON. The business is valued at 22 000 M. €. In this way, the utilities sector led the gains: RWE rose 9.29% and E.ON gained 5.54%. On the other hand, Britain’s GKN initially reacted positively to the fact that Melrose has increased its offer by the company to a value around 11240 M.USD. However, it later reversed this trend, ending up with a loss of over 2%. The uncertainty associated with US customs duties, which could trigger a trade war, continues to influence and condition the behavior of financial markets.

 

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The European technology sector recovered almost all of the losses suffered in February, while the Nasdaq has already reached new highs. However, the US technology sector accounts for 25% of that country's market, while in Europe the weight of the technology sector stands at a mere 6%. If we compare the technological sector to an engine and its weight to its power, it is easy to see why the American market performs better than the European one.

 

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In Frankfurt, Adidas shares jumped 11.58 percent after the sporting goods company announced a significant stock buyback program, boosting prospects for 2018 and boosting its profit forecast for 2020, given the rapid growth of online trading.

 

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Despite continued fears about global trade, European markets have soared, boosted by economic data and published business results. Most sectors traded higher, despite the relative underperformance of telecommunications companies and producers of raw materials.

 

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The growing tension between the UK (supported by a number of European countries) and Russia may begin to negatively affect the stocks of companies with heavy exposure to this this country. The European sectors most exposed to the Russian economy are oil, automotive, beverages and luxury goods.

 

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The US markets closed with modest gains, which did not prevent the week from coming out with a negative change. The day was marked by the absence of news or tweets regarding the future steps of the Trump Administration concerning its customs policy. As such, investors were focused on the operations related to the maturity of futures and options, called the quadruple witching. In addition to this maturity, investors followed the publication of economic data that pointed to a slowdown in the real estate market (7% decrease in the beginning of home construction), although industrial production and consumer sentiment confirmed the current phase of expansion of economy. Despite all the uncertainty and turbulence of the current economic climate, American savers seem to have returned with enthusiasm to stock markets. In the week ending March 14, American savers subscribed a total of 43,300 M.USD in shareholder funds. The large portion of this amount was channeled to US equity funds (34600 M. €), followed by Japanese stock funds (around 4000 M.USD) and specialized funds in emerging markets (3500 M.USD). The subscription of European stockholder funds was insignificant.

 

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European stocks may be vulnerable to a reversal of this positive initial trend. One of the standards that has emerged in 2018 is the underperformance of European markets vis-à-vis the Americans. Since the beginning of the year, the Eurostoxx50 lost 3.12% while the S&P500 appreciated 1.47% (and the Nasdaq100 7.32%). As a consequence of this trend and to reinforce it, the position of hedge funds has been in place. According to Reuters, the amount of short sales on European stocks amounts to 188,000 M.USD, one of the highest levels since the sovereign debt crisis in Europe.

 

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After an uncertain start, the indices of the Old Continent began a slight downward trend that lasted until the last hour of trading, when a brief rally led them back to the opening levels. One of the vulnerabilities of European markets today was the banking sector. The epicenter of the weakness of this sector was the Italian banks. On the positive side, the oil sector stood out, reflecting the rise in oil prices. Crude was picking up on rumors that President Trump and Saudi Hereditary Crown Prince were studying a way to counter Iran’s expansion into the Middle East.

 

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Two of the factors that conditioned the European session, including the specter of a world-wide trade war and the effects of the FED meeting, were also putting pressure on US stocks. Another factor that was causing some nervousness among American markets was the weakness of the so-called FAANG (Facebook, Apple, Amazon, Netflix and Google) that was spreading to the rest of the market.

 

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European markets again ended the session with significant losses. President Trump's decision to impose customs duties on Chinese imports has revived fears about a global trade war. These fears have translated into a strong aversion to risk that has affected not only stocks (especially the more cyclical and the more export oriented) but also oil and industrial commodities. On the other hand, assets refuge such as state bonds, Swiss franc and gold appreciated.