Trading Journal

American indices closed higher, boosted by some consumption data and seasonal factors. Yesterday were published Cyber ​​Monday sales that surprised by the positive. Given the same Monday last year, online sales grew 16%, a growth rate higher than the 12% estimated. This variation reassure many investors who had been concerned about the disappointing sales in stores and shopping centers. Another variable that inspired buyers is that December is traditionally a positive month for equities. Generally, the pattern of this month is characterized by an initial rise during the first week, followed by a correction and a rally at the end of the month.

Before the joint committee of Congress (Senate and House of Representatives), Janet Yellen reiterated its confidence that the US economy is recovering, based on the improvement of the labor market and the factors that are limiting inflation should diminish in next year.

The labour figures are not a worthy measure of how the economy is preforming.

In the short term, it is not inconceivable a reversal of the trends of recent months, and the American stock market indices could register a over-performance compared to the European.

Recent issues related to the Fed and the ECB relegated to the background the economic situation in China. Despite the measures taken by the Chinese authorities in recent months, the economy continues to show signs of weakness and it's not already visible which is the magnitude of the slowdown or the extent to which the Beijing government has the situation under control.

The reaction to Chinese economic data, which point to numerous weaknesses should mark the beginning of today’s session. The economic situation in China not only affects several European companies such as oil prices. Early this week, the fall in the oil price (Brent reached on Monday the lowest price since 2009) has been the main theme of the equity markets. In addition to the negative impact on the oil, mining and industrial sectors, the decline in oil prices affect the perception investors have of the world economy. The fall in crude oil price results in part from weakness in demand, which in turn reflects the economic slowdown in some parts of the globe. Moreover, the descent of the oil has another side effect. Crude oil is the main income of many Middle Eastern states and is the foundation of its social policies, usually quite generous. For example, the cost of extraction in Saudi Arabia is less than 10 USD / barrel but to finance its social programs the oil has to negotiate somewhere between 80 and 90 USD / barrel. With oil trading near the 40 USD / barrel, the Saudi kingdom and other Gulf states had to find other sources of financing. Thus, the sovereign funds of these countries have started to sell the assets held abroad. According to the Financial Times, in the 3rd quarter, Arab sovereign funds made at least 19 000 M.USD in redemptions of assets. The real amount is higher to the extent that many investment funds are not required to disclose the transaction of SWFs. According to the Financial Times, in 2015, Saudi Arabia has sold 70,000 M.USD in assets from their fund that manages 670 000 M.USD. In conclusion, if the weakness of oil persists, the equity markets will have to continue to absorb this selling pressure.

The weakness on Wall Street and European markets weighed on Asian indexes. The most affected stock exchanges were Tokyo and Sydney. The Chinese stock markets, whose correlation with the US and European markets is not high, also suffered some selling pressure. Additionally, there are some concerns in the Chinese markets in relation to the high number of IPO (initial public offering) of about 670 companies, despite the new rules adopted to soften its impact. Usually, investors sell shares they hold in order to participate in these IPO.

The decision of the Chinese central bank to favor a devaluation of the Yuan may have a negative effect on European exporters sectors such as automotive and industrial.

Before the meeting of the Fed (Tuesday and Wednesday), the attention of investors will be focused on the evolution of crude oil and commodity prices. Broken the barrier of 37 USD / barrel for oil prices, the selling pressure on the equity markets intensified as previously projected, since it stimulated more short selling in oil, mining and industrial sectors. However, the selling positions either in oil or in these sectors is reaching very high levels, which may feed a short-term technical rebound, as these investors may suddenly quit their positions, thus fueling the upward motion.

Generally, the pattern of this month is characterized by an initial rise during the first week, followed by a correction and a rally at the end of the month. So far, it can be assumed that this pattern is repeating itself, only missing its most interesting part: the year-end rally.

The session will be marked by the expectation of today’s meeting of the Fed. If nothing significant occur regarding oil prices, investors will adjust their portfolios to the US Federal Reserve meeting. Whereas many investors had set up short positions (sellers) in the equity markets (and particularly the most vulnerable sectors such as oil and mining), it is possible to occur a buying pressure, as these investors may close their positions.

The more cyclical sectors and more dependent on the weakness of the Euro (such as automotive, industrial, etc.) should register a over-performance. In terms of indices, the DAX is the most benefited from the weakness of the European currency. The mining sector recorded a sharp appreciation in the Asian session but if such a move be extended during the European session, the recovery is likely to be volatile and once again dependent on oil prices.

The decision of the Central Bank started a new cycle in US monetary policy. For six years, benchmark interest rates remained at historically unprecedented levels in a range between 0% and 0.25%. Now, with the increase decided on Wednesday begins a new upward phase of the interest rate, which is supposed to be more gradual than the previous. Typically, increases in interest rates are considered unfavorable to equity markets. However, the history of stock markets reveals a different pattern.

Today's session will serve to clarify how much of the fall of Friday is due to the maturity of derivatives and how much was due to the weakness of the market.

As long as the SP500 remains above the zone of 1994/2000, the possibility of a rise by the end of the year still remains.

Tomorrow begins the period that corresponds to the so-called Santa Claus rally. This period includes the last five sessions of the year and the first two of the new year. Over the past 29 years, the S & P had a positive performance 26 times, with an average gain of 1.74%.

Happy Holidays!
Merry Christmas and a Happy 2016!

This week will again be shorter due to the celebration of the New Year. Today, the trading volume, which is traditionally lower, will also be conditioned by the closure of the London stock exchange (“Boxing Day”). In business terms, the news are not relevant at the beginning of week. An highlight to the Swiss banking sector, after having informed Reuters that four Swiss banks will pay more than 178 M.USD to the US Justice Department to avoid possible charges for helping tax evasion to US citizens.

Yesterday, North American market recovered from lows during the session, despite having ended in negative territory. However, given the low trading volume this recovery becomes negligible, and it is not possible to anticipate with more certainty a positive trend.