Trading Journal

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%.

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

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

Mitigating concerns about a possible trade war favored the US market earlier this week. Microsoft was up about 6 percent after Morgan Stanley raised its target price for the company, noting that the software company's market capitalization reach $ 1 billion with the growing adoption by cloud customers, as well as improved margins.

The performance of the yields is relevant, since in the last two weeks, together with the specter of a trade war between the US and China, has explained the fragility of the European banking sector.

In European opening, stocks are trading lower, influenced by the reversal of the US market trend in yesterday's session. The technology sector should be the focus of attention, since in Wall Street it was the main reason for the downward behavior of the market. Rise concerns about tighter control in this industry, following the news about Facebook. Other companies to attract attention should be the mining companies, after the negative behavior of the sector in Asian markets.

The recent risk aversion of investors has manifested itself through the purchase of bonds, which has led yields to retreat sharply. This move has led many fund managers to buy utilities and sell bank shares (more related to business cycles and a positive correlation with interest rates. In fact, as of 15 March, DJ Stoxx Utilities has appreciated 2.13% vs. DJ Stoxx Banks' 3.96% decline Now, from a technical point of view, as the yield drop reached extreme levels and with German yields testing the 0.50% support, they increase the likelihood of a recovery in yields. sovereign interest rates, ie a devaluation of State bonds.