Dax 30; Ftse 100; SP 500 - Market View

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In the macroeconomic context, the day was marked by the presence of ECB President Mario Draghi in the European Parliament. In his first dialogue this year with MEPs, and about a week away from the next monetary policy meeting, the ECB President said that the ECB should remain persistent and patient in attributing stimulus to the economy, even in the face of current momentum which makes the Central Bank more confident in terms of prospects for inflation levels. In fact, Draghi argued that inflation remains dependent on monetary stimuli. In addition, Mario Draghi mentioned that ECB measures have placed the Eurozone economy on a “solid growth path, driven by domestic endogenous dynamics and therefore more resilient to a potential slowdown in global demand.” However, he added that “inflation has to show more convincing signs of a sustained path of adjustment.”

 

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The indexes are still in consolidation. A breakout from this consolidation zone will set in motion and a trend for the weeks, until then we may expect to sell the highs and buy the lows.

 

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The question that today's session raises is whether European indices will fully reflect the Wall Street losses or considering its recent underperformance this indentation will be limited. The year 2018 teaches that complacency can be a dangerous feeling.

 

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The testimony of the new President of the FED forced investors to reshape their perspectives on the monetary policy of the FED. Jerome Powell, defended not only the dynamism of the American economy but also his conviction that inflation will reach (in the long term) 2%. Generally, the periods during which investors reformulate their outlook are volatile.

 

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The Trump Administration's decision to introduce customs barriers to steel and aluminum should weigh heavily on the stocks of manufacturers of these metals (such as ArcelorMittal and ThyssenKrupp and car manufacturers, heavy users of these raw materials in their production processes). The specter of retaliation for these measures has already materialized in the EU Sweden's proposal analogous barriers. On the positive side, the decline in yields in the US and its probable contagion to European sovereign rates should mitigate the losses that utilities and telecommunications should suffer due to the external environment. From a technical point of view it can not be ruled out that after the first negative impact the indices could start an intraday recovery.

 

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The buyer impulse was also fueled by fast money which considered excessive losses from previous sessions. In the debt market, yields continue to retreat, with 10-year interest rates approaching 2.80%.

 

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At the current stage, investors are concerned about the protectionist rhetoric of the Trump Administration that could trigger reactions in Europe and China.

 

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Historically, trade wars have no winners, but only defeated. In the 1930s, one of the reasons for the prolongation of the Great Depression was the decision of several countries to repeatedly promote the depreciation of their currencies in order to increase the competitiveness of their exports. This other form of trade war was driven by a continuous recession of these economies and by the general impoverishment of populations. At the current stage, the barometers to gauge investor sentiment on this issue are the metal producer sectors and the automobile, as the latter appears to be the next to be targeted by President Trump’s protectionist policy.

 

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The trade deficit deteriorated in January, having reached the maximum of the last 10 years (56 600 M.USD). The trade balance deficit was higher than estimated due to the 1.30% drop in exports, which is explained by the lower sales of aircraft and their components to foreign countries. Imports remained virtually unchanged. Interestingly, steel imports, which are at the heart of the recent controversy over tariffs, have remained broadly unchanged.

 

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European stock markets ended the session with valuations, albeit contained. On one hand, there was pressure on the tariffs on imports of steel and aluminum imposed by President Donald Trump, and this theme was rekindled after President Trump said that in addition to Candá and Mexico, US trading partners who have a fair competitive position could also be exempt from such taxes. On the other hand, markets were favored by the US employment report, as well as reports that North Korean leader Kim Jong Un offered to stop nuclear and missile tests and the US president agreed to a meeting of two leaders that may happen before May.