Dax 30; Ftse 100; SP 500 - Market View

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In recent weeks, the position of hedge funds has been changing. Until mid-February, these funds mainly held selling positions on oil, but in the last two weeks not only the pace of closure of these positions increased as some hedge funds began to get long on crude oil, which reinforced its upward movement.

 

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At this stage, the money markets allocate a modest probability (63%) to a rise in interest rates in 2016, which has given some encouragement to equity indices. In conclusion, the ideal for the equity markets would be that the indicators describe an American economy far from precipitating a recession but not so dynamic to raise a sharp rise in interest rates.

 

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American indices closed higher, as investors reacted positively to the employment report, which described a very dynamic labor market but that implies an increased risk of a rise in interest rates. The employment report allayed, at least temporarily, investors’ fears in relation to a US recession scenario. In February, the US economy generated 242,000 jobs, which add up over 30,000 resulting from the upward revision of the readings from December and January. The unemployment rate stood at 4.90%, recording no change facing January. Economists had anticipated the creation of 195,000 jobs and an unemployment rate of 4.90%. However wages fell 0.10% in February. In this context, where rising wages in recent months is interrupted, the decline recorded in February may lead the Fed to take more caution before raising rates. Another consequence of the employment report was that some economists began to revise upwards the estimates for the 1st quarter of this year. Generally, this period is the least dynamic of the year. According to the econometric model of the Fed Atlanta, US GDP is expected to grow 2.20% in the 1st quarter instead of the 1.90% previously estimated.

 

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The most recent economic data in the US exclude the scenario of a recession in the country, so there is no risk of an abrupt descent. On the other hand, despite a flexure in the first months of the year, the European economy continues to grow, sustained by domestic demand, and fuel consumption shall not decrease.

 

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Investors are positioning themselves for the realization of the ECB meeting tomorrow. This position will be seen in the stock market as well as in the currency and bond markets.

 

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US markets closed with modest gains, which were mainly due to the rise in the oil sector, resulting from the sharp increase in crude price. The Department of Energy revealed that US oil reserves rose by 3.88 million barrels, a variation above 3.17 million estimated. After this increase, the American oil reserves reached the highest level since the decade of 30. However, for the 3rd consecutive week, gasoline stocks suffered a bending, this time of 4.52 million barrels (estimated – 1.49 million). To this information were added the statements of the Iraqi Minister of Petroleum who said OPEC members and other producers outside the cartel will meet in Moscow on 20 March. The other sectors did not experience significant changes, except the biotechnology companies which declined throughout the session, ending with a loss of 1.15%. Today, attention on Wall Street will focus on the reaction of European markets to the ECB meeting .

 

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In the pre-opening, European shares showed some gains. The reason for this initial rise is justified by a technical reaction to yesterday's falls and rising oil in the Asian session. The last session was particularly volatile, with the major indexes reaching gains between 2% and 3% before finishing with a devaluation of 1% to 2%, and it is worthy of a brief analysis. The reasons for yesterdays' behavior in the European equity indexes are essentially two. The first relates to the fact that the ECB did not have introduced a system of different interest rates to liquidity that banks hold with that institution. Negative interest rates penalize the profitability of banks, as these can not compensate for the negative rates of their deposits with a decrease in the interest rate on deposits of their clients. The ECB could have differentiated what is a necessary or prudential liquidity of excess liquidity by applying them to different interest rates. The adoption of such a measure could mitigate the negative effects on the banking sector of a further reduction in interest rates on deposits. The adoption of negative interest rates on deposits have been one of the causes of strong underperformance of the banking sector in recent months. The second reason was the reaction of the euro. The European currency had the widest intra-day variation of this year, ranging between 1.0822 and 1.1116 in just over 30 minutes and later reaching 1.1217. The rise of the European currency is perhaps explained by the fact that in the forex market all measures taken by the ECB (with the exception of the reference rate descent) had already been anticipated by investors. In addition, in the lines of his speech, Mario Draghi has indicted that the potential decline in interest rates is from yesterday onward, quite limited.

 

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US markets closed with fairly sharp gains, thus achieving the 4th positive consecutive week. The reasons for the positive trend are several. The main reason for this last rally will be due to the perception that the risks of the US economy into recession are minimal. After an early uncertain year marked not only by the turbulence of the financial markets and the slowdown of the economy, economic indicators for February showed a very dynamic activity. The latest and most striking evidence was the employment report, released on 4 March that signaled a very dynamic labor market, with the economy approaching full employment. The second reason is due to the resilience of oil price, which recovered about 35% from the minimum of the year. Another factor that has contributed to the Wall Street rally is the need for many institutional investors to monitor the rise in their benchmarks. Furthermore, last week for the first time this year, subscriptions of equity funds were greater than redemptions, which provides more liquidity to fund managers apply to the equity market. Perhaps the only catalyst which is confined only to the Friday session was the reversal of the sense of European investors to the decisions of the ECB. Because of the change of time in the US, trading in the US stock market will start today at 13h30 and will end at 20h00 (GMT). Only on 28 March US markets will resume to normal trading hours (14h30-21h00 GMT).

 

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Investors began to position themselves for the meeting of the Fed, which starts today and ends tomorrow.

 

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The expectation of today’s meeting of the Fed dominated the Asian session. In fact, there has been a decrease in the volume and volatility, and most investors adopted a defensive stance, which explains the decrease of some stock exchanges such as the Japanese and Hong Kong.