Dax 30; Ftse 100; SP 500 - Market View

In the pre-opening, the European indices continued to rise, reflecting the positive developments in trade relations between the US and China. However, the activity of European markets will be less than usual due to the celebration of Pentecost Day in mostly Protestant countries like Germany and Switzerland. Even so, an initial positive reaction is likely from the sectors most prone to exports (especially to China) such as the automobile, mining, industrial, and others. After this reaction, European investors will focus on two interrelated themes: sovereign yields and the evolution of the political situation in Italy.
 
Recent developments in the face of trade tensions between the US and China have cheered the European stock markets in this first session of the week.
The stock market activity was less intense as the Frankfurt and Swiss stock exchanges were closed yesterday for the celebration of Pentecost Day.
 
Recent declines in the Euro have led the common currency to the most extreme oversold levels since November 2016. Yesterday the Euro showed some signs of stabilization, which may be the prelude to a short-term technical recovery.
 
BMW and Daimler fell more than 2%. On the contrary, the telecommunications companies registered gains. Deutsche Telekom said it expects average annual revenue growth of 1% to 2% by 2021.
 
Yesterday European markets ended slightly lower. The uncertainty associated with the political scenario in Italy continued to influence investor sentiment and had repercussions on the stock and debt markets. Banks' stocks were the most penalized. In the foreign exchange market, the Euro maintained its downward trajectory against the US Dollar, thus moving towards the 6th consecutive week of falls.
Next Monday, American markets will be closed, celebrating the Memorial Day.
 
The first day of the week was negative for most European markets and especially for the Italian stock market. As expected, market activity was much lower than usual, as the London and North American stock markets are closed: in the United Kingdom the "Spring Bank Holiday" is celebrated and in the USA the “Memorial Day”. In sectoral terms, the variations were not very marked, and the producers of raw materials stood out in the positive. The Italian stock exchange closed with a fall of 1.99%, and the banks were the main catalysts of this trend. With respect to the debt market, 2-year Italian yields from Treasury Bonds rose to levels around 0.862%, while 10-year TBs declined further to stand at 2.659%. In the foreign exchange market, the Euro suffered a slight devaluation against the Dollar.
 
The political situation in Italy and Spain created a scenario of fear and risk aversion that was seen today in the financial markets. In Italy, Carlo Cottarelli, nominated by the President of the Republic, will try to form a government that is likely to be presented tomorrow to the President and will have to submit to the vote of the Parliament and the Senate. Despite the charisma it brings, it is unlikely that Cottarelli’s team will win the vote of the two legislative chambers, both dominated by the 5 Stelle Movement and Lega Nord. On the other hand, in Spain Parliament debates on Thursday and Friday the motion of censure presented by the Socialists, after the sentence of the National Audience, which condemned the Popular Party (led by Rajoy) for one of the most corrupt cases in recent years in Spain.
 
Fears about the political situation in Italy have eased, giving investors some less risk aversion. The main indexes closed in different directions. In the foreign exchange market, the Euro recovered part of the lost ground in the previous sessions, having been fixed against the Dollar at USD 1.16. In business terms, Bayer rose more than 4 percent as investors monitored the news that US authorities had authorized the purchase of Monsanto by the German company for 66 M.USD after a two-year process, which lays down the obligation to establish the sale of the agricultural unit of Bayer to BASF. Regarding the economic indicators published today, the consumer confidence index in the Euro Zone fell in May from 112.7 to 112.5.
 
Stock trading continues to be penalized by fears of political instability in Europe. With the scenario in Italy moving towards a resolution via a “political government” but the outlook in Spain to point to the fall of government tomorrow with the vote on the motion of censorship. But the concern that we are facing an imminent trade war is also in the offing, with US President Donald Trump adding more fuel to the fire.
 
In the pre-opening, the European indices rehearsed with some gains. As a first step, financial markets should react to the formation of a new government in Italy. After the negotiations were over, President Mattarella appointed Giuseppe Conte to the position of Prime Minister. Giuseppe Conte will have as deputy prime ministers, Matteo Salvini and Luigi di Maio, the leaders of the Nord League and the 5 Stelle Movement. For the finance portfolio Giovanni Tria, an academic, was appointed, with very critical positions on the path that the European integration process has taken, blaming Germany for it. In an initial phase, Italian assets may react favorably to the end of the impasse but will later consider the positions defended by Giovanni Tria. In addition to the new developments in Italy, European investors will have to face another challenge: the imposition of tariffs on European exports of steel and aluminum to the US. Donald Trump's decision raises the specter of a phase of protectionism that will shake up world trade.
 
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