American elections, the strangest and harshest in recent history, are coming to an end in just few days when American electorate will decide who will be the next US president. Nonetheless, the election process seems having not reached its peak in terms of “external perturbation”. Firstly, the leaked tape with Trump’s comment on women, then the massive Russian (according to US agencies) cyber-attack and Assange’s WikiLeaks, and lastly the “unprecedented” interference of the FBI in a critical moment for the candidates and their campaigns.
James Comey, appointed Director of the FBI under the Obama administration, over-ruled a precise order from the Department of Justice to avoid any communication with the Congress regarding Clinton’s mail investigation. The FBI Director sent on Friday a letter to the Congress in which he communicated that the investigations will be reopened on the basis of new findings. Hillary Clinton called this move: “unprecedented” and very recently, Republican Senator Charles E. Grassley from Iowa expressed serious concerns about the foundation and the significance of Comey’s findings: “Unfortunately, your letter failed to give Congress and the American People enough context to evaluate the significance or full meaning of this development”. Nonetheless, the campaign had already been deeply influenced. New polls suggest that the distance between the two candidates has dramatically decreased.
Financial markets do not like uncertainty and on Friday, during the second part of the trading session when European markets were already closed, Comey’s declarations, offset gains and optimism triggered by GDP results above expectations: 2.9% YoY. Yesterday, all major European indexes reported losses and the DJI closed at 18142, -0.1%. One thing is sure, we should brace for much more volatility and downward pressures.
This week, financial markets have been led in their upward trend by the voices coming from Central Banks. On Tuesday, two ECB officials, Coeuré and Noyer, declared that the European Central Bank is purchasing in May and June larger amount of assets, in order to cope with the issue of scarce liquidity in the bond markets between July and August. This news pumped up all major European Markets as leading the dollar into a new surge, reaching EUR/USD 1.1009. During this week, a various number of meetings occurred between Greece and European officials. In Monday, Athens officials assured the public that a potential deal with IMF and creditors was likely to be reached. From Wednesday, rumors spread the news that Greece will not be capable of paying back the $305m tranche to the IMF, which in later days appears to be confirmed. I agree with the voices that see the Exit of Greece, the so-called Grexit, as a potential Lehman Brothers alike financial disaster. Not considering the political disaster the crash of the European Union would mean this event would shake up all assets classes very badly. The anomalies in the German Bond Market in the past few weeks showed how fragile the situation is by now. At this level of prices, especially in peripheral Europe, Grexit (in my opinion) would cost a 30% crash in the markets, and unquantifiable difficulties in the real economy. In Markets, sell-offs are more brutal and violent then upward movements. A CRISIS CAN BE ANY MOMENT AT YOUR BACK. Plan Carefully. On the Macro side, the ZEW Index, which measures the Economic conditions of Germany, based on economists’ consensus, was below expectations: Economic Sentiment at 41.9, EXP 49.0. Nevertheless, German DAX was able to report a weekly 3.21% settling at 11815. FTSEMIB closed at 23782, +1.31%, IBEX 11554, +2.1%, FTSE100 7013, +0.76%, CAC40 5143, + 2.99%, Lisbon PSI20 6102, -0.3%.
On the US market operators’ sentiment was mainly driven by earnings’ results coming from Retail Giants, and macro data. Wal-Mart Inc., failed in meeting expectations, quarterly EPS was 1.03, EXP 1,04. Home Depot beat the estimates with q. EPS 1.16, EXP 1,15. Target on Wednesday beat the estimates with q. EPS at 1.1, EXP 1.03. Lowe’s missed analysts’ expectations, reporting q. EPS at 0.7, EXP 0.74. Retail Earnings are very important in America because they mirror the consumer’s spending attitudes. Retail Sales on a macro level fell. Wal-Mart showed lower sales growth rate than expected. Consumers do not seem aligned in giving up money for spending. On the macro side, from the housing market, Housing Starts MoM increased 20.2% and Building permits MoM 10.1%. Real Estate data are a very important indicator of the soundness of the Economic recovery in US. Increased starts mean more contracts signed and more inflows of liquidity, making the market more flexible to meet demand and to expand one of the invoices of Consumer Spending. The FED published the minutes of the FOMC on Wednesday, in which FED officials observed that a rise in interest rates may be expected for the next semester. No major macro indicator is expected to be published next week. Volatility in the market will be triggered by developments of the situation in Greece. DJI closed at 18351, reporting a weekly -0.22%, NASDAQ 5085, +0.81%, S&P500 2126, +0.16%.
On the other side of the financial world, the Nikkei topped multi-year high reaching 20264 and a weekly performance of +2.69%. Wednesday, GDP data have been released. Abe’s Japan topped estimates: 0.6% increase on a Quarterly basis, EXP +0.4%, and +2.4% on a Yearly basis. This long rally lead the Index to levels never reached after 2000. The Hang Seng closed at 27992, with a weekly +0.39%. KOSPI closed at 2146, with a weekly +1.89%.
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%