Market View; World Stock Indexes; Trading Journal

The first stage of the morning should be marked by the expectation of the ECB meeting, which will likely translate into reduced volumes and a contained volatility.

the bull or the bear has the edge on the DAX 30 today ?

Today, the session will be dominated by two themes. The first is the evolution of oil. The second theme of the day will be the intervention of several members of the Fed. Although the vast majority of investors have the conviction that the Central Bank will not raise interest rates in September, financial markets continue to look for evidence to support this assumption. For today, are scheduled the interventions of the Governor of the of the Boston Fed, the Dallas Fed Governor and member of the executive committee of the Fed Daniel Tarullo.

In recent months, several members of the Fed have been advocating being the conditions for an increase in interest rates, and September is a possible date. On Friday, the Governor of the Boston Fed, Eric Rosengren said that the risks of delaying an increase in interest rates are growing. This statement was complemented by the conviction that the US economy is in a phase of strong expansion and has shown resilience to external shocks, the most recent being the Brexit. Recent interventions by various members of the Fed, forced investors to question themselves about the possibility of a rise in interest rates already at the meeting of 20 and 21 this month. Generally, when a market conviction is shaken and called into question, the result is an increase in volatility and a significant increase in risk aversion of investors. It was this pattern that was observed on Friday. Sales reached all sectors, with particular focus on the more cyclical and more sensitive to interest rates, commodities, corporate bonds, among others. US government bonds also suffered losses, because of its sensitivity to interest rates. This last point raises a threat to the equity markets. If increases the prospects of a rise in interest rates by the Fed is not ruled out that yields exceed the level of 1.63%. This level is important from a technical point of view because if surpassed may signal an upward movement in yields. In this scenario, the impact on the stock market would be negative. Technically, in recent weeks, the S & P had oscillated (with the exception of some specific moments) between 2168 and 2194, with very low volatility. Usually these market phases precede very significant movements and high volatilities. The fall on Friday was particularly and surprisingly expressive, and may mark the beginning of a new market phase.

Today begins a conference organized by CNBC, where they will participate in several personalities of the economic and financial world, as fund managers, hedge fund managers, economists, etc. This event may represent a good opportunity to know the views of stakeholders in the current environment, and which is their position in terms of portfolios and to what extent are anticipating a rise in interest rates.

The major Asian indexes closed lower, because of Wall Street weakness. One of the effects that the rise in US yields has in Southeast Asian countries is the increase in financing costs in these economies. In fact, several companies and banks are financed in dollars in recent years. Now, with the appreciation of the dollar and rising US yields, debt burden for many companies as well as the cost of obtaining new loans became higher.

The publication, scheduled for today, of retail sales was one of the last and most important data before the meeting of the Fed, next week. In fact data became worst than expected.

Today, as in Europe, will expire futures contracts and options called quadruple witching, which shall cause a much higher than average volatility and the occurrence of erratic movements. Nowadays, the most sensitive time 13h30 (opening) and 18h00. The day of expiration of options and futures is statistically positive for positive markets, and also considering the losses of recent days, it is not excluded a hypothetical recovery. Even if this move materializes, the technical situation of medium-term American markets remains delicate.

During the first hours of trading, European markets should be supported by the oil and mining sectors. In the Asian session, the industrial commodities traded up. The catalyst of this rise is essentially technical in nature. In recent weeks, many investors decided to sell positions in these assets and now, before the Bank of Japan (BoJ) and the Fed meetings they began to reduce this exposure. In fact, if the Fed does not act together with the BoJ and make a conciliatory statement to investors, then risk assets (including oil) will appreciate in value. Another sector that will be monitored by investors will be the banking sector, after the weakness of Friday.

The S & P500 has a new sector: real estate, yesterday debuted with a gain of 0.75%. Now, the index which serves as a benchmark for many investment funds consists of 11 sectors.

Investors reacted positively to the Bank of Japan’s decision (BoJ). The meeting today stood the intention of the BoJ to gain greater flexibility in its asset purchase program by failing to have a fixed amount for these purchases and by failing to have a predefined target for the debt maturities that acquires. The BoJ also undertook to continue the expansion of liquidity injected into the economy until inflation reaches 2%.
Completed the meeting of the Bank of Japan, the spotlight falls on the meeting of the Fed. The big question on the US Federal Reserve meeting is whether it will increase the reference rates. Changing the perception of investors about the future of US interest rates caused an increase in the volatility of risky assets, accompanied by a fall in equities and bonds. The picture became murkier when several macroeconomic indicators for August pointed to a bending of the activity. The Fed has essentially two objectives: promoting full employment and control inflation around 2%. The first objective can be defined with a certain unanimity, which was fulfilled. The second has not yet been (inflation is located in 1.60%) neither there is a reliable estimate of when it will be reached. Against this backdrop, the money markets assign a low probability to a rise in interest rates at today’s meeting (12%) and economists point to a modest probability (average 50%). The more the Fed delay a rise in interest rates the more will lower its capacity in the future to alert and prepare investors. In short, the meeting of the Fed today will materialize in one of two outcomes. The Fed does not raise interest rates but takes on a harsh tone in the statement, almost promising a rise in December (the November meeting is very close to the presidential elections, so it is excluded as a possible date). The second scenario is a rise in interest rates together with a conciliatory statement to the market. The reaction of the bond market will dictate the reaction of the stock markets.

In a context marked by the decisions of the central banks, it is important to monitor the intervention of Mario Draghi at a conference organized by the European Systemic Risk Board, over which he presides. It is not excluded that during his speech, Mario Draghi make nod to the European banking system situation and possibly the future of monetary policy in the eurozone. In the short term, European equities should continue to be influenced by the EU yields (which will be conditioned not only by the words of Mario Draghi as well as the development of their American and Japanese counterparts) and to a lesser extent by the behavior of oil. This raw material should take a more volatile pattern with the approach of OPEC's meeting next week.

After the strong rise of the last two days, there is the question whether the “benevolent” decisions from the Fed and Japan’s central bank are sufficient to restore positive sentiment of European investors or whether these valuations require new catalysts. This rally itself can be self-sustaining, for some time, because in theory the fund managers have a high level of liquidity in their portfolios. However, this liquidity can be used to feed the redemption of specialized equity funds in Europe. In fact, the week ending on 21 represented the 33th consecutive week of redemptions by American savers. Just last week, were redeemed 571 M.USD in specialized equity funds in Europe. Possible catalysts for a rise in European equities would be a decrease in yields and an excellent earnings season from European companies.

After a week marked by meetings of central banks, global stock markets seem to have entered a new phase. In this new chapter, the central banks will continue to play an important role, but will have to share it with oil and with the intensification of the US election campaign. In this context, there has been a more cautious stance on the part of Asian investors, which resulted in some profit taking, from gains generated by the meetings of the Bank of Japan and the Fed.

Subsequent to this reaction to the presidential debate European investors will focus on the banking situation.

In a context of increased risk aversion, the yen is a refuge, so the Japanese currency has appreciated in the last two sessions, thereby penalizing the Nikkei and especially the export sector.

Before the financial committee of this institution, the Chairman of the Fed has taken a balanced and prudent approach. Janet Yellen said that there is no timetable for increases in interest rates despite several members of the Fed believe are necessary interest rate increases. So, in absence of any new risks and if economic conditions will remain it will be appropriate an increase interest rates.

Yesterday, although oil has managed to keep up the levels it had after the cartel’s decision announcement, American equities were shaken by the weakness of the financial sector.

The improved perception of global investors in relation to Deutsche Bank boosted Asian markets. In Japan, the Tankan report showed that the feeling of Nipponese industrial large remained unchanged in the 3rd quarter of this year.

Today, attention will be focused on the behavior of the shares of Deutsche Bank and the intervention of two members of the Fed, the Governors of the Federal Reserve of Richmond and Chicago.