Dax 30; Ftse 100; SP 500 - Market View

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Since Wednesday there has been a generalized rise in world yields, a movement that gains greater expression in those countries where public debt is high. In the short term, the rise in the US yields and the US Dollar have reached extreme levels and may therefore be corrected. The long-term trend of these two variables should be traced when the new US Presidency provides more detail on the economic measures it intends to adopt.

 

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Today, the Republican Party will elect its leader in the House of Representatives. This election will be a good opportunity to assess the relationship between the party and the President. One should notice that during the campaign, several exponents, such as the current leader of the House of Representatives Paul Ryan, did not support the candidacy of Donald Trump. For President Trump to implement his economic measures requires the consensus of the Republican Party.

 

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Since the election of Donald Trump there has been a strong and volatile rise in the most cyclical sectors (primarily banks, with the exception of the mining and oil sectors) and an abrupt decline in the more defensive and more sensitive sectors of state yields. Wall Street yesterday’s session witnessed a recovery in the latter sectors, and that pattern is likely to be imitated in Europe. Among the sectors that were previously penalized the oil company should be the most dynamic, as after yesterday’s valuations, crude oil continued to appreciate during the Asian session.

 

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Fed Chairman James Bullard said yesterday that it is quite likely that there will be a rise in interest rates in December, unless there is some surprise. At the present stage, the money markets give a 90% probability to an increase in key rates at that date.

 

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US indexes closed higher. Janet Yellen’s words and their positive impact on US bond yields reinforced the pattern observed during the so-called Trump Rally. Banking and cyclical stocks led the rise, while utilities and the oil sector underperformed. Before the Congress’s Joint Economic Committee, Janet Yellen argued that the US economy continues to expand, having accelerated after a troubled start in the year. The Fed Chairman added that “a rise in interest rates is appropriate in the short term.” This statement was more incisive than the statement from the last Fed meeting two weeks ago.

 

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Asian markets closed higher. The Dollar dip benefited some Southeast Asian markets. Although the strength of the American currency of recent weeks favor exports, it is important to remember that several banks and companies in the region subscribed bonds in dollars. When appreciated the Dollar, increases the the debt amount of these institutions, many of them with a high financial leverage. In Japan, exports declined for the 13th consecutive month, signaling the loss of competitiveness of their companies (due to the appreciation of the Yen during 2016). Imports also declined, partly because of the strength of the yen (which decreases its value) but also because of weak domestic demand.

 

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As they hit new highs, US indexes force fund managers to follow the rise and buy stocks. Before the election, although discounting a victory by Hillary Clinton and having a misperception of the consequences of a remote election of Donald Trump, several fund managers had taken a defensive stance in their portfolios. Now, faced with the appreciation of the main indices, these investors have to take a more aggressive position, allocating a larger portion of their portfolios to the stock market.

 

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The European indices continue to be traded in a wide range, which has lasted since June. In addition to the economic indicators, investors will monitor the publication of the minutes of the last meeting of the Fed (7:00 pm). The publication of this document may be less important than usual as investors expect, almost consensually, that the Fed raise interest rates at the December meeting. In fact, money markets put that probability at 100%.

 

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In the pre-opening, European stocks traded without a definite trend. Today, the European session is expected to be less crowded due to the US holiday. In addition, after the recent movements observed in the various markets (foreign exchange, bond, etc.) investors are expected to make a pause to evaluate the adjustment to the new reality. In addition, investors will reflect on the potential scenarios that the constitutional referendum in Italy on December 4 may lead to. With US markets closed, European investors are expected to react to the publication of the IFO sentiment index and any sharp moves in the remaining markets. Today, a hypothetical more abrupt move should be explained more by the lack of liquidity than by a change in investor perspectives.

 

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American markets were closed for Thanksgiving. Today, the session will be shorter, ending at 18:00 GMT. Today is called Black Friday, which marks the official start of the shopping season, which coincides with the most profitable period of retail chains. In recent years, with the expansion of online sales the importance of Black Friday has been losing some importance for Cyber Monday. Purchases during this period are monitored almost daily by analysts (with higher incidence at weekends, when consumers are more affluent to the stores) and are well publicized in the financial media, and thus condition the performance of stock markets . For the shopping season as a whole, sales are expected to grow 3.60% over the same period in 2015. At the statistical level, since 1928, the S & P has appreciated 68% of Black Friday sessions, presenting a little average rise Lower than 0.27%.