Today, almost one hour ago, Fed Chairman Janet Yellen spoke about the Federal Open Market Committee’s decision to leave Federal Funds rates unchanged. The status of the American economy is not sound enough to justify a unanimous rates hike at this specific moment. Labor conditions have improved but not to a satisfactory level. Consumer spending has been sluggish, Retail Sales reported modest improvements. Inflation has not reached yet the target of 2%, although Oil price decline boosted consumer’s purchasing power. Fed Chairman sees in the forthcoming months moderate growth, and a modest but stable recovery. If the US economy will meet the Committee’s targets, the hike will come. The Financial Community warned against a premature rates increase, notably Christine Lagarde from IMF. Federal Reserve representatives see the second half of 2015 as most likely for a change in Monetary Policy. Bond prices have already started to adjust to possible inflation spikes, both in Continental Europe and US. American Equities have digested relatively well the news, reporting moderate daily gains.
Let’s see what the next Fed statement will tell us.
Today, Monday 18th May 2015
European Equities experienced volatility in the first part of the day. The Italian FTSEMIB was the worst performer mainly due to the issuance of dividends. Around 50 companies, from various market segments, Large, Mid, Small Cap, issued dividends, which accounted for €7bn, pushing down the Index to -1,5% in the first hours of trading. The uncertainty about the outcome of the talks between Athens and European officials, who took place today, fueled a selloff around 12-13 that led all Indexes to their Intraday Low. FTSEMIB reached the short-term resistance point at 23000 before settling at close at 23198, -1.17%. German, French and English Equities remounted after testing intraday minimums, closing positive: DAX +1.29%, FTSE100 +0.12%, CAC40 +0.37%, EUROSTOXX50 +0.45%, IBEX +0,24%. I attribute the positive turnaround to the fact that markets have bet on a positive outcome of the talks between Greece and Europe. Today, Pierre Moscovici, the European Economic and Monetary Affairs Commissioner, said that a common understanding on the reforms to be backed to the new IMF rescue plan was in the route to be reached. The Athens Stock Exchange General closed +1.62%. If a deal will be reached between Greece and creditors, there is enough space for a further upward in European Markets. Macro data are improving in Italy, and France. Some Italian blue chips are still undervalued in my opinion, and there is also the opportunity to profit from the dividends issuance, by betting on the sounder companies who suffered the most price decrease. Personally, I took a small position on SNAM, an Italian utility company, who issued a dividend of €0.25 per share, when it was at 4.518, -5%.
On the Asian side, Nikkei 225 settled at 19890, at +0.8%, KOSPI (Korea) 2113 +0.34%, Hang Seng 27591 -0.59%. Japan stocks, after BoJ’s Governor Hikuroda reinforced its QE, have rallied very steeply. As of today, I count a yearly +42% of the Nikkei. Unfortunately, Japan economy is known for being unpredictable in terms of results, and Japan Stock Exchange is among the most volatile in the world. If QE will not succeed, turbulence will rise. I would STAY AWAY from trading this underlying, unless other clear signals manifest.
American Equities are in the wake of the earnings season. DJI closed at all-time high 18298 +0.14%, breaking the resistance point positioned at 18289, but volumes were less consistent then yesterday. S&P closed at high 2129 +0.3%, NASDAQ at 5078 +0.6%. Weeks ago, the NASDAQ broke the historical resistance point at 5000, Scylla and Cariddi of the dotcom bubble of 2000. Techs and Biotechs are boosting this bullish trend. Earnings and macroeconomic data will be the main focus of market makers. More specifically, some of the retail giants will publish their results this week. Wal-Mart Stores will open its books tomorrow morning. Retail sector is under particular focus considering the weak results in Retail Sales. Americans, despite improved economic conditions are not spending as much as expected. A turnaround in American Habits??? I do not think so. I would be cautious and see further movements before entering in long position. It is probable a downturn happening soon, for the most brave shorting the DJI could be a good move.
However, I WILL NOT MOVE A FINGER BY NOW!! CBOE VIX Index rise 2.83% at 12.73. The volatility, especially in Europe has been mounting up, with investors betting on riskier assets, as shown by the selloff on German Bunds. These markets change direction very quickly, BE CAREFUL.
This week has been moved by important macro-economic data.
Europe, 13th May:
Italy reported a better than expected GDP growth, 0.3% quarterly versus 0.2% exp., ending de facto the recession period. I expected improvements in the Italian economy, considering the increased industrial orders. FTSEMIB, the Italian blue chips Index, after the news reached the maximum intraday of 23401, before settling at 23211, with a 0.46% daily increase.
France reported better than expected GDP growth, 0.6% quarterly versus 0.4% exp. CAC40 went up to its max intraday at 5046, before closing at 4962 with a -0.26%.
Germany, considered as the engine of Eurozone growth, reported results below expectations, quarterly 0.3% versus 0,5 exp. DAX settled down 1.05% at 11351.
As a whole the EUROZONE reported a quarterly growth of 0.4%, and a yearly 1.0%.
US economy seemed to show slowdown the weeks before, reporting a quarterly 0.2% growth while economists expected 1%. Retail Sales were below expectations, at 0.0% versus 0.2%. In America this indicator is very important due to heavy dependance of US’ growth on retail spending and consumption. Thursday, a good data from the job market woke up the markets, Initial Jobless claims were at 264k versus 275k expected. The news fueled a bullish upward in every major market. DJI rallied up to 1.06%, S&P 500 1.08%, Nasdaq closed at +1.39%.
Weekly performance are:
FTSEMIB, +0.69%, CAC40 -1.90%, DAX -2.24%, FTSE100 -0.98%, IBEX -1.12%, DJI +0.45%, S&P500 +0.31%, Nasdaq +0.89%, NIKKEI +0.57%