Trading Journal

European markets experienced a significant recovery yesterday. The recovery of the European Indexes was related with the perception that European companies have achieved good results.

US markets were driven by good business results on both sides of the Atlantic. Despite all the fears about the global economy, US companies are daring to record better earnings season this year. In fact, from the 208 companies in the SP500 that have reported their accounts 72% beat forecasts. Economic data, including a breakdown of durable goods orders, the lowest growth in house prices and the rise in consumer confidence had a limited impact on the session.

The FED meeting will be the main event of day as well of the week. The agenda include the program of debt acquisition and the outlook for the interest rates.

At the beginning of today’s session in Europe markets started the session slightly higher to reverse within the first hour of trading. Investors react to the announcement of the Fed’s meeting yesterday and to the results published this morning.

The US markets closed yesterday without major fluctuations. The Fed meeting was the main event of the day and caught little enthusiasm that had come to cheer investors in previous days.

The Federal Reserve’s decided to end its asset-purchase program, which had begun in September 2012 and which was one of the drivers of the equity markets during this period. According to a release, the interest rates will remain at low levels for “an extended period of time.”

The European markets started the session with sharp gains. The catalyst for the initial rise is the unexpected decision by the Bank of Japan, which increased its annual program of debt acquisition from 590 000 M USD to 726 000 M USD.

While the Fed’s monetary policy has been the main driver of equity markets, the Bank of Japan also starred in an important role in creating liquidity. At a time when the Fed and the Bank of England are starting to reverse the course of their monetary policy, the decision of the Bank of Japan is an important step to counter the decrease in liquidity generated by those two institutions.

The final reading of inflation in the Euro Zone will be released today. Economists estimate that inflation has recorded in October grew 0.40%. Although the effects of the ECB’s measures has only impact on the level of prices in the coming months, if inflation is lower than estimated, it may have a negative impact on investor sentiment.

US markets were boosted by corporate earnings, positive reading of GDP and operations related to the end of the financial year of some institutions.

The US economy benefited from rising exports and a sharp drop in imports, particularly oil, which was explained by the increasing crude oil production in the country. Moreover, the huge increase in military spending boosted public spending and affected GDP by reflex.

US indexes were also positively influenced by the fact that yesterday (just like today) represent the end of the financial year to several investment funds and pension funds. Generally, these periods are positive for stock markets.

European markets trade with no major fluctuations, the first hour of trading was influenced by the worrying PMI reading in China and the pressure on the oil in the international markets.

The publication of the final PMI readings relative to the major European economies and the Eurozone as a whole, did not alter the initial market behavior that is taking a small break from the strong rebound.

As mentioned in the previous post, the US markets exchanges at 52 Week Highs and were recently driven by the decision of the Bank of Japan. In addition to this decision, another important measure was the announcement that the State Pension Fund will increase their exposure to equity markets for 50% of its assets. This Pension Fund is the largest in the world and manages approximately 1.15 million M. USD. The Fund will allocate 35% of its assets to Japanese bonds, 15% to bonds of other countries, 25% in Japanese stocks and 25% to international equities. With these two events, investors expect some of the liquidity generated by the Bank of Japan, as a part of the financial availability of the State Pension Fund are channeled into US stocks, thereby offsetting the reduced liquidity that will characterize the near future, as consequence of the reversal of the Fed monetary policy.

The stock market traded under selling pressure and the fall in oil prices, which hit a new low today, weighs not only on its sector, but also on the general market.

The earning season continues in Europe, and companies have reported this morning corresponding to the positive pattern observed so far.

The European Commission, under the chairmanship of Jean-Claude Juncker, has lowered its economic projections, given the slowdown in the Eurozone.

European markets trade with gains, reflecting the positive reaction to the US mid-term elections. However, there is a risk of this effect is not lasting. At this stage, the behavior of oil prices and the ECB meeting tomorrow assume greater importance.
In the US, the ADP report, which measures job creation in the private sector, caused some volatility but its impact on the course of the session should be limited to the extent that this indicator is not a very reliable barometer of NFP employment report that will be published on Friday. The first indications of the midterm elections point to a confirmation of the Republicans control the House of Representatives. The victory of the Republicans should favor oil sectors, pharmaceutical and defense industry.

The ECB meeting will be the main event of the day. Although there is hope that the ECB suggest the introduction of new monetary stimulus measures, this scenario is unlikely to materialize in this meeting. A scenario that is not excluded is a reduction in the estimates for economic growth and inflation for 2015.

The British economy has been one of the most dynamic (in 2014 should grow by 3%), helped by low interest rates and the devaluation of the pound. However, in some areas of the economy such as the housing market, there have been some inflationary outbreaks.

US markets closed higher, reflecting the victory of the Republicans, who won control of the Senate. This positive effect was later reinforced by the rise in oil prices traded in the US. Although the victory of the Republican Party in these elections had already been partially discounted by the markets, yet gave a boost to defense, pharmaceutical and oil sectors. The oil sector also benefited from the recovery in oil prices, driven by sharp falls in oil reserves in the US. According to the ADP report, the US private sector created 230,000 jobs in October, slightly above the estimated 220 000. Today, the opening of Wall Street should be influenced by the ECB meeting.

Yesterday’s statements from the ECB President did not provide anything new but were sufficient to dispel some fears that had been accumulating in the previous days. Mario Draghi reiterated the commitment of the Central Bank to take more extraordinary measures if the situation in the Eurozone worsen.

This morning, before the opening, was published the monthly change in industrial production in Germany, which grew in September 1:40% compared to forecasts of 2%. This variation does not offset the decline 3.10% in August.

In terms of results, Allianz reported higher than estimated earnings and raised its dividend. The steelmaker Arcelor Mittal also reported higher results than expected and kept its targets for 2014.

US markets fluctuate, while the unemployment rate unexpectedly fell to a minimum of six years.

The employment report is the main indicator of the labor market but has not provided the positive signals from other indicators.

The recovery of the labor market performed over the last two years has not been accompanied by a sharp rise in wages, which creates a certain restraint in consumption. Weak Wage inflation has been one of the reasons why the Fed keeps an accommodative monetary policy even before the increase in job creation.

Investors will also monitor the activities of the FED’s President Janet Yellen (15:15) and Vice-President Daniel Tarullo (19:30).

After the vertical climb in recent weeks, the European markets, entered a phase of heightened sensitivity to adverse events or news. Some negative factors may bring some weakness in the coming days:
- The apathy in the provision of credit may evidence that the European economy can not engage in a credible and sustainable recovery, even with the multiple aid of ECB. To these fears add up the steep losses on value suffered by Greek banks on Friday.
- Increase of Geo-Political tensions in Ukraine. On Friday it was reported that heavy fighting occurred in the east of the country and that a Russian armored column had entered the Ukraine.

The American markets closed on Friday without major swings. The employment report was the main event of the day and had contained reaction from the equity markets, fitting the expectations of investors. In October, the US economy generated 212,000 jobs, a little less than 235 000 mentioned by economists.

In October, China’s exports grew 11.60%, beating forecasts of 10.60%. Imports registered an increase of 4.60%, slightly below the 5% target. These data are of some importance, to the extent that exports have been one of the strengths of the Chinese economy in 2014 and have enabled China to obtain successive surpluses in the trade balance.

European markets trade without major fluctuations. The earning season continues today with the publication of the quarterly accounts of several Italian banks. The oil drop suggests to many investors a sign of the global economic slowdown, however, it is noted that the downward movement of crude oil is also explained by an oversupply. The fall in the Oil price is a threat that goes beyond the rational perception, to the extent that the situation in many oil producing countries begins to deteriorate. Among these producers, the biggest threat comes from Russia. Germany is the country with the largest trade ties with Russia and the European markets are likely to accuse some vulnerability in the coming days.

US markets closed with modest gains but enough for the Dow Jones and S&P to reach new highs. US stocks continues to be boosted by a favorable moment characterized by low interest rates, positive corporate earnings, auspicious economic data and abundant liquidity. This period of inertial rise will require new catalysts to extend the current rally. Moreover, any adverse event or factor may have a very significant impact on the underlying trend.

Today is the Veterans Day. The stock market is open, unlike the bond market and the liquidity on Wall Street should be less than usual.

Asian markets closed without major fluctuations. The only exception was the Nikkei which reached the maximum of seven years after the Bank of Japan started buying assets. Yesterday, after the closing of the Japanese market, the Bank of Japan acquired the equivalent of 265 M € of ETFs listed on the Tokyo Stock Exchange.

European markets trade with losses. One of the main news of the day is the penalty imposed against several banks by supervisors in England and the USA. In England, the supervisor has stipulated Citibank, HSBC, JPMorgan, Royal Bank of Scotland and UBS to pay a fine of 1100 M.GBP due to irregularities in the forex market. For its part, the US Commodity Futures Trading Commission reported that these banks will have to pay a fine of 1,400 M.USD by irregularities of the same nature. Although the conviction was expected, the fines are much higher than in comparable occasions.

The International Energy Agency will publish its report on the outlook for the end of 2014. Investors will monitor essentially the part on US production of oil and gas. The US became the world’s 3rd largest producer (accounting for about 10% of global production) due to the shale revolution, the horizontal extraction of gas and oil from shale surfaces.

Today, the Bank of England will hold a press conference to coincide with the publication of a bulletin on inflation. The economic growth of recent years has caused some inflationary outbreaks and some speculative levels that some areas of the housing market (especially in London) have reached. Among the various Central Banks there is a high probability that this can be the first to reverse the monetary policy in recent years.

The US markets closed with modest gains, with the Dow Jones and the S&P at new highs. Liquidity has been reduced due to the Veterans Day celebration, with many market players staying aside.

European markets opened slightly higher, recovering some of yesterday’s losses. The day was initially marked by the publication of data relating to some European countries. Today, before the opening, the change in inflation in Germany was published. In October stood at -0.30% compared to September. In France, inflation remained unchanged. By 9:00 am, the ECB reported its monthly newsletter.

Data on the Chinese economy, which were not famous, will condition the feeling of European investors.

The issue of Ukraine and the economic and financial situation in Russia are two interlocking themes that came to the fore again in recent days. Yesterday, several sources of information reported that Russian military columns had entered the eastern Ukraine, worsening the situation for the economies of both countries.

US markets are still going through a consolidation phase. In fact, in the last 5 sessions, the volatility of stock market indices have been much lower than in previous weeks. After a strong rise is normal a correction in the markets (as in the case of European indices) or at least fluctuate within a relatively narrow range consolidation (as have done the American Stocks). The fall of oil conditioned, once again, its sector while the fines imposed on 5 international banks have shaken investor’s sentiment regarding this sector.

Similarly to yesterday’s behavior, European markets opened slightly higher than the previous close. The session will be dominated by important economic data: The GDP of the Eurozone, and the inflation relative to October. The German GDP grew only 0,10%, in line with the estimate for the 3rd quarter. France grew 0,30% in the same period, exceeding economists’ forecasts. Regarding Eurozone´s inflation, economists estimate has increased to 0,40% (compared with 0,30% recorded in September). The reaction of investors will depend on the monetary stimulus measures that may be adopted by the ECB. If economic growth is lower than expected and / or inflation falls below the estimated this will reinforce the possibility of the ECB introduce a bond buying program.

US markets continue to consolidate. The Stock Market have been valued through reports of specific companies and sectors. At the macroeconomic level, one of the major uncertainties in the current economic climate is on consumption at a time when the US economy begins to accelerate. Retail sales are one of the best barometers of this variable, as it represents about 30% of private consumption. The fall in the price of fuel (fruit of the oil drop) has a negative accounting impact on retail sales, to the extent that the value of the sale of gasoline and related products is lower. However, lower expenditures on gasoline allow Americans to buy other goods. Thus, the most relevant of today will be the indicator for retail sales excluding cars (a very volatile component) and fuels.

European markets declined early in the session, reflecting the unexpected news out of Japan whose GDP fell 1,60% in the 3rd quarter. The European indices recovered from early losses and ended higher.

Mario Draghi presented to European legislators a list of political resolutions for 2015, and mentioned that an expanded purchase program to stimulate the economy could include government bonds. The President of the European Central Bank used his testimony from the last quarter of 2014 calling on the European Parliament to political action that complements monetary policy, insisting that his institution alone can not fix the economy of the region.

In Brussels, the foreign ministers gathered to discuss the situation in Ukraine and the position of the European Union on Russia. During the G20 meeting this weekend week, the President of Russia abandoned this event, showing the gap between this country and the West.

At the macroeconomic level, investors were surprised today with excellent numbers forthe ZEW index. This indicator measures the sentiment of investors and is prepared through a survey of 350 financial agents. At a time when the German economy is almost stagnant, the feeling of financial agents is of greater importance.

The SP500 has risen to new highs, with the rally in the health sector and the small-cap companies recovering from yesterday decline. Consumers and Investors Sentiment is quite positive at the moment.

European markets traded in a tight consolidation. The last two days have shown an improvement in investor sentiment, motivated by the reinforcement of ECB’s intentions, by its President Mario Draghi.

The last few weeks were marked by the strong underperformance of European banks. This has been substantiated by the increasing signs of contraction in the eurozone economy, the legal costs and fines of several banks that have shaken investor sentiment and the fact that the ECB has not yet achieved the expectations of the market regarding the implementation of a program purchase sovereign debt.

US markets fell from historic highs with the release of the Fed minutes, which revealed that some members said the central bank should remain alert to the possibility of prices in the US economy are not growing fast enough.

The Housing Market Index (Nov) rose in November to 58.0, thus reaching the maximum of the last nine years.

Asian markets closed with contained losses. In Japan, held a meeting of the Central Bank and a distinguished nuance of today’s meeting last month, since the number of members of the Bank who supported the expansion of monetary stimulus program increased from 5 to 8, a total of 9 members.

The first hours of trading the European Stock Markets were marked by the publication of a relevant economic indicator in China, the PMI index for the manufacturing industry, prepared by HSBC economists. According to HSBC economists the manufacturing activity in this country fell to 50.0, the lowest level in six months. This reading was below the 50.4 recorded in October and 50.3 estimated by economists.

The first hour of trading did reflect investors’ concerns and this was compounded by the publication of the PMI index for the manufacturing industry in Germany and in the Eurozone, as the values were below the estimate. After the opening of US market, the situation was reversed with the publication of US economic data with values above expectations.

The market will be impacted today by Loretta j. Mester’s speach from Fed, and tomorrow at the opening bell of the European markets by the speech of Mario Dragui.

In recent days, European markets had an overperformance comparing to the Americans. There are several reasons for this behavior, of which to highlight the words of Mario Draghi at the European Parliament and a recent study by JP Morgan which maintain their preference for the European Stocks, justified by the possibility of the ECB implement quantitative easing measures and the fact that European indices have better ratios (as the PER, share price divided by earnings per share of the company) more appealing than Americans. Another factor has to do with the expectation of some international investors that the difference in returns between the American and European markets may decrease by the end of the year. For example, since the beginning of the year, the SP500 appreciated by 10.84%, while the DAX fell 0.83%.

The European indexes have opened slightly higher than the previous close and begun to rise after Mario Draghi’s intervention at this morning conference. The conference started at 8:00 and was organized by the Bundesbank and with the participation of several German banks. Mr. Draghi said the ECB must drive inflation higher, and will expand its program of asset purchases, if necessary to achieve this. On Monday, before the European Parliament, Mario Draghi had already repeated that the ECB will continue to support the economy of the Eurozone and could implement a quantitative easing if the situation worsens. So far these promises have been enough to push up the markets as investors believe that his words will gain expression through concrete measures.

This week will be particularly intense and that intensity should focus primarily on the first three days of the week, as the US stock market will be closed on Thursday, Nov. 27, for the U.S. Thanksgiving holiday and on Friday will have a reduced session. This is an important moment for the assessment of the real state of the economy in the Euro Zone. The indicators to be published should condition the economic projections that the ECB will hold at its December meeting, as well as their propensity to implement a sovereign bond-buying program. In addition to the confidence index of German business, changes in the GDP of the German and Spanish economies will be published, inflation in the Eurozone, as well as some reliable indicators for this region. The more fragile are the numbers of the economic agenda largest is the probability assigned by investors to the implementation of a quantitative easing program by the ECB.

In the US, are also disclosed relevant data such as GDP for the 3rd quarter, consumer confidence, the Chicago Purchasing Managers’ Index, among others. The Thanksgiving Day holiday also precedes the beginning of the Christmas season retail sales, which is one of the factors of great influence in Wall Street this time of year.