Market View; World Stock Indexes; Trading Journal

The European indices started the session with some gains. The session will again be dominated by the presentation of results on both sides of the Atlantic. Good numbers from Amazon may give some encouragement to the European technology sector. The mining sector may continue to register a underperformance due to the selling pressure on the commodities that has characterized the Asian sessions. In addition, Anglo American reported a 30% fall in half-yearly profits, trying to compensate shareholders by paying a dividend of 0.32 GBP. To these factors must be added the warning signs of the Chinese economy. Air France reported a higher profit than expected, keeping the projections for 2015. Danone announced a result roughly in line with the anticipated but sales growth was stronger than expected. In turn, BASF announced an EBIT that was lower than expected. Banco Sabadell announced profits that topped forecasts.

Investor sentiment was influenced by company results and also the weakness of commodities. Conditioning the markets were some leading companies like Apple, 3M, Microsoft (among others) which presented disappointing sales, the very cautious outlook for some companies in the future, profits not based on increased sales but repurchase programs of own shares and cost cuts. The fall in the price of raw materials has not only an impact on the producing economies (such as Brazil, Australia and South Africa) as signals that economic activity in the consuming economies (notably China and other countries Asian) is slowing. Investor’s fears were reinforced on Friday with the release of China’s PMI index, which showed an unexpected decrease, remaining in a contraction phase. To the hypothetical weakness of some economies power up the strength of the US dollar which reduces the value of earnings generated in foreign markets. Despite macroeconomic concerns, the data that were released during the session had a diminished role in the course of the main indices. Sales of new homes fell by 6.80% in June to 482,000, the slower pace of the last 7 months. Predictions were for 550,000.

The present situation confirms the evidence of slowdown in China and the stagnation of some emerging economies such as Brazil and South Africa. The copper (copper), whose cycles anticipate with some precision the economic cycles, lost 26% in the last 12 months. In this context, the US economy appears as an oasis. Orders for durable goods grew by 3.40% in June, exceeding the 3% estimated by economists. This indicator is strongly influenced by aircraft orders. In June, Boeing received an order for 161 planes, after the Air Festival of Paris-Le Bourget. In May, orders were only 11. The recent losses in the mining and industrial sectors, encouraged by the fall in the price of raw materials and the instability of Chinese financial markets, led these sectors to extreme of oversold levels.

The lower volatility of Asian markets boosted US equities. The rally was led by the mining and oil sectors, which had been the most penalized by falls in Chinese stock markets and commodities. The rise may also have been influenced by the closure of vendors positions by the so-called fast money (short-term investors) before the meeting of the Fed.

The Fed was sparse in nominations and no major changes from the previous meeting. The Central Bank says that the economy continues to grow moderately, recognizing the improvements seen in private consumption and the housing market. With regard to the labor market, a key part of monetary policy at the current juncture, the Fed brought greater focus to define how solid progress as well as reducing the unemployment rate. Only to exports and investment the statement pointed to some slowdown. Inflation remains away from the long-term objective (2%) due to falling fuel prices and some imported goods. By failing to provide clear indications, the Fed set aside some room for maneuver in relation to the time it decides to normalize interest rates. A rise in interest rates until December is assigned a probability of 57%. Until January this probability rises to 74%. These expectations contrast with the opinion of 80% of the economists, who before the meeting, expected an increase in rates already without September. After bending 0.20% observed in Q1 (the result of some non-recurring factors), economists estimate that GDP grew 2.50% in the 2nd quarter. This period is a kind of antechamber of the 2nd half, when the Fed estimates an acceleration of the economy.

US markets ended without major fluctuations, with the session to be marked by macro and micro-economic factors. The publication of yesterday’s economic data confirmed the Fed’s optimistic view on the US economy.

The most cyclical sectors may present a under-performance due to disappointing data in China. During the European debt crisis, the Chinese market was an important rewarding element for many European companies which in the domestic market were penalized by the economic downturn. Today, the Greek Stock Exchange will reopen after being closed for more than a month. Marked losses are foreseen at an early stage. Since the closing of the Athens stock exchange, an ETF, listed in New York and that replicates the largest Greek companies, lost 17%.

Greek stocks have lost more than 85 percent of their value since 2007. The nation’s benchmark gauge closed at its lowest level since September 2012 on Monday.

Today, investors will follow the publication of the ADP report, which measures job creation in the private sector. Economists take advantage of the ADP report statements to improve their forecasts for the official employment report.

In the early hours of trading, mining and oil shares should negotiate under some selling pressure, resulting from strong reversal of the trend that was observed in the commodities market after the European close. In addition, investors will analyze the results that were published before the opening, but probably should have an impact strictly in the related stocks and should not influence the market as a whole.

Asian indexes closed higher, boosted by the good performance of the Shanghai Stock Exchange, which at 7:20 AM accumulated gains around 2%. Boosting the shares of this market was a report published by the state agency Shanghai Securities News that several investment funds have more than one million M. yuan (Chinese currency), about 150 000 M. €, to allocate the equity markets. While other Asian markets have closed up, the attitude of investors was characterized by some caution, justified by the publication of the US employment report.

Today’s session starts without relevant business news and with an economic agenda also quite meager. In this way, there can be expected more expressive movements by producers of raw materials, after being revealed economic indicators in China.

After the close of yesterday’s session, Google surprised the market by announcing that it will be replaced by a new parent company called “Alphabet”. The company explained in a statement that the universe of products and companies is already too big to exist under the name Google. The company chose to undertake a corporate reorganization with reflection in organizational structure. In the aftermarket, Google’s stock is up about 5%.

In the beginning of the session, European equities negotiated slightly higher, after the US stock market have reversed their downward trend and Asian stocks have also ended in positive range. The European markets consolidate after strong selling pressure after a devaluation of the Yuan of 1.90%. Today, the Chinese Central Bank have fixed a Yuan only marginally lower, thus giving a signal that wants a devaluation of its currency but in a thoughtful way. In business terms, Nestlé reported, relative to the 1st half, sales below expectations due to the collection of one of its products in India, while the second largest German utility company, RWE, also showed a lower semi-annual result than expected. Also German, ThyssenKrupp reported a significant increase in quarterly profit, aided by units of elevators and steel in Europe, beating analysts’ forecasts. On the other hand, the technological sector should capture the attention, after last night Cisco Systems have submitted their results, reporting a growth of 3.20% in net profit for the 4th quarter, while revenues increased 3.90%. In addition, the company expects an increase in their income between 2% and 4% and earnings per share between 0.55 USD and 0.57 USD. Cisco shares rose 3.87% in the aftermarket. Today’s publication of the minutes of the last meeting of the ECB should not raise great interest, since in this last event, July 16, there were no changes to the current monetary policy.

The Fed’s monetary policy is again the center of the debate on Wall Street after the economic data releases have suggested an increased strength of the economy, raising renewed expectations that the Fed start the interest rate hike cycle already in September.

Asian shares closed lower, with the Shanghai Stock Exchange accumulating losses of 2.50%, at 7:00 am. During the weekend, the Financial Times reported that the Chinese government would abandon its strategy to stabilize the stock market by buying shares held by state-owned financial institutions. The government in Beijing will focus its efforts on the punishment of persons and organizations that supposedly destabilized the Shanghai and Shenzhen exchanges. Initially, the Chinese authorities have tried to counter the sharp falls in stock markets, buying, through state funds, about 200,000 M.USD in two months. These interventions did not have had the desired success, displeasing international investors, as they are not familiarized the State to adopt such measures.

Asian shares closed with losses, which were quite pronounced in Tokyo. Dictating this trend were the economic data on China. In August, the PMI index on manufacturing activity, elaborated by the Chinese Government, fell from 50.0 to 49.7. This is the lowest level since August 2012, thus signaling that the Chinese industry is in a contraction phase. Caixin/Markit index, which also measures the manufacturing activity, fell in the same month from 47.8 to 47.3, the lowest since March 2009, confirming the contraction signs from the official PMI index. The difference between the two indexes lies in the PMI index that appeal to a larger sample and focus mainly on state enterprises and larger. The Caixin/Markit index is focused on a smaller sample, which consists mainly of small and medium-sized enterprises. In the past, investors associated negative data of the Chinese economy to possible monetary stimulus measures at this stage, investors fear that the Beijing government further devalue the yuan, which could induce other emerging countries to adopt a similar measure.

Despite the heavy losses suffered by Wall Street and the uncertainty in Asia, European markets are expected to remain resilient, at least at an early stage. In any case, investors are still nervous and sentiment is still particularly fragile. Developments in China in recent months raise a number of issues that shake the convictions that investors had before the summer. In addition, some investors are wondering if falling stock markets worldwide will not be a sign that the world economy will enter a slowdown phase. While these doubts are not dissipated, the market will continue to seek a balance, a process that usually translates into higher volatility.

In the pre-opening, European equities were trading higher, favored by the strong appreciation of Wall Street and the relative stability of the Asian session. It is not excluded that the standard of yesterday’s session to be repeated today. Yesterday, there has been a remarkable over-performance of the indices of Central Europe comparing to their Iberian counterparts. The reason for this trend is related to the fact that Central Europe’s economies have greater exposure to China than countries like Spain, Italy and even Portugal. Apart from exports, several German companies and other Central European countries have factories in China, which increases their dependence to this country. Today will take place the meeting of the ECB, which will have less interest than usual. The main point of interest will be the update of the economic projections. Since June’s projections, the situation in Greece became less unstable but the slowdown of the Chinese economy has become more evident. The ECB estimates that the GDP of the Eurozone grow 1.50% in 2015, 1.90% in 2016 and 2% in 2017. Some economists expect the ECB to revise downwards their projections for inflation (0.30% in 2015 and 1.50% in 2016 ). At the press conference, held at 13:30 it will be interesting to see if Mario Draghi will weave any comments on the impact of instability in China in the Eurozone economy.

In the pre-opening, European shares traded lower, as a result of the fall of Asian stocks and the publication of the employment report in the US could instill some caution in European investors. The impetus given yesterday by the words of Mario Draghi to the European equity markets, which signaled the possibility to increase and extend the debt purchase program, it risks being temporary. Because of the August events in China and also in emerging markets, the fears of investors fell in the situation of the global economy (and especially the impact of China on the recovery of the Euro Zone) and more recently in future steps of the Fed. These are two themes in that the power of the ECB’s influence is quite limited.