Trading Journal

In exchange terms, the higher the inflation, the greater the positive impact on the Euro. On the contrary, a lower reading of inflation may lead, with all other factors being equal, to a devaluation of the common currency. However, since August has a calming effect and a consequent decrease in volumes traded, the reaction of investors to a news or event is more pronounced as it is exacerbated by the lack of liquidity. If this is the case, the reaction of the exchange market to events or the publication of economic indicators (such as inflation) will be more extreme and, by reflection, their impact on the stock markets will be greater.

On the last day of the month, the US market closed higher, this being also the trend of Wall Street in August. The session was marked by the release of some economic indicators, but the expectation was focused on the employment report that will only be known today.

Gold appreciated 0.95% while the Swiss Franc rose about 0.70% against the Dollar.

In the past, the reaction of financial markets to events related to North Korea was sometimes abrupt but always momentary. The reason for this pattern is that the incidents with this country were isolated and generally followed by some calming or at least by some impasse. However, the current situation has been characterized by a continuous series of events, each one being more tense than the previous one. It is in this uninterrupted accumulation of tension that the threat to the financial markets may lie. Another factor not to be excluded is the possibility that some unforeseeable incidents might occur that would oppose the North Korean and American or South Korean armed forces, which could precipitate the situation.

Although investors are focusing this week on the reopening of the Congress, the developments in the Korean situation, the ECB’s tomorrow meeting and the FED are remaing as elements in their decisions. At the sectoral level, the tourism and insurance sectors suffered losses due to the approach of Hurricane Irma to Florida, a few days after Hurricane Harvey. According to meteorologists, Hurricane Irma may be the strongest hurricane recorded in the Atlantic, with winds of 300 km / h. According to analysts’ projections, in an extreme scenario, the passage of the two hurricanes could cause damages of about 130,000 M.USD.

Shares of insurers, reinsurers and tour operators have again come under some pressure as analysts update their calculations of Hurricane Harvey’s damage and are trying to anticipate what hurricane Irma will cause in the Caribbean and in the southern US.

At the last meeting of the ECB, Mario Draghi appears to have fulfilled the twofold objective he had set himself: to prepare the market for a change in the asset purchase program without unduly alarmising investors. The ECB could decide on changes to the asset purchase program at the next meeting in October, avoiding requests for more information from journalists attending the press conference. To avoid a more pronounced market reaction, the ECB President reassured investors that 'a very accommodative monetary policy is needed' to generate the desired inflation.

Asian markets closed higher, essentially for two reasons. The first is the generalized recovery of the Dollar against the region's currencies. The second is that North Korea has not carried out any war test during the weekend. In the last 3 months, the Chinese stock exchange has been the best Asian performer, accumulating gains of 6%. Other Asian markets have been conditioned by tensions on the Korean Peninsula and the fluctuations of the respective currencies against the Dollar (which influence the competitiveness of their exports). The Chinese economy has behaved rather better than many economists anticipated a few months ago. Economic activity has given repeated signs of strength, grounded in the dynamism of infrastructure, the real estate market and exports. Chinese markets have also benefited from continued capital flows that continue to flow into emerging markets, of which China is the most representative.

In the last three months, the indices of the Old Continent registered a remarkable underperformance compared with their American counterparts. After the highs reached at the beginning of June, European stocks suffered a correction between 5% and 10% and in the last two months have consolidated over a wide range, without showing a definite trend. On Monday, some indices broke this high, increasing the likelihood of a short-term rally. This probability would be strengthened if the Euro corrected. Despite continuing to trade around 1.20 against the Dollar, the Euro has lost some momentum against other currencies, which deserves some vigilance from investors. The threats to this potential positive scenario for European equities are the situation in Korea and some hypothetical correction on Wall Street.

The Automobile Fair is still taking place in Frankfurt, the biggest event of this industry in Europe. This type of event is always a good opportunity to gauge not only the opinion of stakeholders but also their feelings about the current situation. After a first half of the year in which it has been strongly influenced by sales in the European continent (after six years of recovery), the automotive sector has been one of the best performers in the Old Continent in recent weeks.

As the next week’s FED meeting approaches, investors’ expectations for the US Central Bank’s position on how it will reduce its balance of 4200 000 M.USD in assets as a result of 8 years of an ultra-accommodating monetary policy. This week’s economic data should help investors design a preview of next week’s meeting.

Despite the immediate immediacy of the launch of new products, the market reaction to the Apple event turned out to be negative. Apple shares fell 0.80% in the session and later 0.18% in the afterhours session.

The Friday rally is explained, mainly, by the closing of futures and options. In addition to increasing exponentially the volume of the session, the maturity of this type of derivative contract has, in most cases, a positive impact on the stock market. Similarly, and still statistically speaking, the week following the quadruple witching tends to be negative for stock markets, while increasing volatility and declining stocks.

Tomorrow prudence should mark the session, with investors waiting for FED (tomorrow) and Bank of Japan (Thursday) meetings.

Statistically speaking, the week following the quadruple witching tends to be negative for stock markets, while increasing volatility and declining stocks.

The FED has a balance sheet in the order of 4500 000 M.USD in assets of various kinds, but mostly bonds, as a result of the acquisitions conducted to resolve the 2009 financial crisis. After several years, with the economy in solid expansion and with the financial sector the FED intends to reduce this gigantic balance sheet without causing major effects on the economy and the financial system. This is an unprecedented task, so the Central Bank will be a pioneer and should set its course as this process unfolds.

The FED meeting caused a sharp rise in US yields, a move that affected its European counterparts early in the session.

Asian markets closed with contained losses in a session marked by a negative surrounding. The North Korean Foreign Minister warned that his country could test a hydrogen bomb in Pacific waters. This announcement generated a risk aversion but only assumed more significant proportions in the South Korean market, with the local currency reaching the low of the last month against the US Dollar. In a more economic sphere, Standard & Poor’s reduced Chinese rating of AA- to A +, citing the strong growth of credit assignment as the main risk to the economy, fueling speculation in some economic activities and making investments with little rational economic development.

Markets closed lower as investors reacted to yet another proclamation by North Korea and the uncertain political context in post-secessional Germany. Pyongyang authorities have defined the words of the American President as being “a declaration of war” at the United Nations. In China, the main indexes suffered losses of around 1% after local authorities announced that new measures will be introduced to control the strong real estate speculation that characterizes several areas of the country.