European Equities Slump Amid Poor US Data and Hawkish Fed Comments

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Stock Market Trading

: 17 May 2013

European equities are set to open flat to marginally lower as a negative close in the US leaves traders eyeing up the exit door.

Another afternoon of awful US data yesterday looked set to be the basis for the now common place move higher on bad news across the Atlantic.

With expectations that the weak data would keep the end of the bond purchase program at bay for a little while longer, traders were able to shrug it off and close in on new all-time highs.

However, Fed members Richard Fisher and John Williams then joined the recent chorus of hawkish songs being sung and US markets didn't like it.

Hawkish Fed members repeating their previously aired hawkish comments shouldn't have such a surprising influence on the markets.

Nevertheless, just as we saw when markets sold off on the recent Plosser comments, perhaps their voices of reason are beginning to take hold amongst the stampeding bulls?

As a result, the Dow Jones removed 42 points from its books to close at 15,233.

Given the circumstances, the index seems to have held its ground fairly well.

In addition to Fisher and Williams' comments, WalMart, the world's largest retailer, posted Q2 profits below expectations and US unemployment benefits also rose.

Despite this, the underlying strength and support in the market is there to be seen.

Stock Market Trading

: 16 May 2013

European shares are set to open flat to marginally lower as the bulls take a short breather.

Even though we saw some woeful data from Europe and the US yesterday, markets managed to muster enough momentum and twist enough logic to eek out another day of gains.

Despite the stark evidence that all is not well, confidence in the ability of central banks to steer their respective economies back to health remains high.

Whilst the bulls appear to be a little more cautious this morning, the bears still seem to be nonexistent.

Expectation is that another batch of weak economic data will soon be around the corner to encourage central banks to push the markets up again.

It appears that whether the economic news is good or bad, the result will be the same.

The Dow Jones gained another 60 points yesterday, despite some poor industrial data, as investors look for stimulating central bank policy to continue fuelling the rally.

Stock Market Trading

: 15 May 2013

European equities look set to start on a positive footing as US markets take back the reins of sentiment.

Despite weak economic data in Europe and the Fed's Plosser calling for a tapering of bond purchases, bullish momentum remained resilient and pushed past any negative cues yesterday.

When Plosser called for tapering last week, the move initially had the effect of pushing US equities into negative territory. In addition, the Hilsenrath article, which focussed on the Fed mapping out an exit strategy, kept US markets subdued on Monday.

However, markets now seem to have shrugged off even the prospect of the biggest bearish cue that they could imagine as the rally becomes self fulfilling.

Even with a well communicated heads up that QE will come to an end, markets look to have kicked their crutches away and started skipping higher on their own volition.

European markets will have to interpret a host of GDP data this morning, expected to show continuing weakness in the region.

However, come this afternoon, any weakness in Europe is likely to be pared as the miracle on Wall Street buoys markets once more.

It may seem boring to say, but the records in the US indices keep falling.

Aside from the now usual all-time highs, Tuesday was the 18th 'gaining' Tuesday on the trot for a rather different type of record.

A positive report on the health of small businesses provided the impetus behind the surge and all seems fairly rosy at the moment, with increasing signs that the world's largest economy is recovering.

Stock Market Trading

: 14 May 2013

European equities are set to open higher, taking their cue from a positive Asian session.

Yesterday saw some choppy trading in Europe and the US, with spread betting and CFD trading investors' indecision seeing the major indices close only marginally higher or lower.

Despite the pickup in US Retail Sales, any optimism was kept in check by the flat Business Inventories as concerns about future demand kept firms cautious.

On the other hand, Asian markets seem to have interpreted the data more bullishly, focusing on the Retail Sales and a possible pick up in their own exports.

Also, looking to the week ahead, the possibility of upcoming US data painting a sturdier picture has begun to creep into valuations.

However, with plenty of muttering and speculation about the tapering of the Fed's asset purchases, could we see a reverse of the 'bad news is good' logic that has characterised much of the rally?

With the Fed assuring us that rates will be on hold until unemployment gets down to 6.5%, any positive data that reduces the current 1% buffer could fuel concerns that the days of easy monetary policy are numbered.

Despite signs that the US consumer is spending more at retailers, this wasn't perceived to be a strong enough indicator to maintain the equity market rally.

As a result, the Dow Jones stock market index closed 25 points lower.

With the earnings season drawing to a close, this week will be dominated by the results of US retailers including JC Penney and Wal-Mart.

Stock Market Trading

: 13 May 2013

European equities look set to open flat as financial spread betting investors wait for further cues.

Despite another set of all-time highs in the US on Friday, and the associated images of high-fiving traders on the NYSE floor, that confidence hasn't carried over to other regions.

Asian markets are trading mixed and Europe looks set to be equally sceptical with a flat start.

Friday saw the Dow Jones and S&P 500 close at their fourth record high of the week, with the Dow closing above the 15,100 level.

As this quarter's earnings season comes to a close, with the majority of companies beating profit expectations, the rally has generally been driven by low-growth defensive stocks.

The next question surrounds whether cyclical stocks will start to experience the same fortunes.

Stock Market Trading

: 10 May 2013

European stock markets are set to open mixed as the negative close in the US and a choppy Asian session raise questions over the longevity of the rally.

Overnight, the recent US winning streak came to an end when the Fed's Charles Plosser, a known uber-hawk, came out and, surprise surprise, said something hawkish.

He voiced his opinion that the pace of stimulus should be curtailed somewhat, and the markets reacted disapprovingly.

The Dow Jones closed the day 20 points lower, although some of the losses appear to have been reversed during this morning's trading.

Whilst Plosser's views on scaling back asset purchases are widely known, for the market to turn negative on the repeat of such comments shows how reliant traders have become on central banks.

Despite the central banks' best efforts to keep spread trading markets rolling higher, trading volumes have begun to recede.

The elevated prices being asked for equities are becoming unjustifiable for many investors given the underlying economic reality which they are being asked to ignore.

However, fear not. Ben Bernanke is due to speak this afternoon and is sure to say something dovish to get the markets back onto his track.

Stock Market Trading

: 09 May 2013

European shares look set to open on a mixed footing this morning, despite another successive bullish close in the US doing its best to drag us higher.

Asian trading was also mixed and CFD investors are growing increasingly uneasy about this rally where one has to ignore the fundamentals and put your blind faith in the central banks.

Considering that 5 OECD central banks have cut rates in May alone so far, those who have bet against the rally have become martyrs to their belief that the fundamentals still matter.

Today, the BoE has its own opportunity to pump up the markets but, despite Mervyn King being a believer in printing to prosperity, the rest of the MPC have managed to curtail his efforts.

Expectations are that the hawks on the MPC will be able to keep him away from the printing press until his after his final meeting next month.

In yesterday's American session, US indices came off a little as some investors saw an opportunity to book profits after an extended run.

For others, the small dip was seen as another opportunity, especially since it was backed up by some strong economic data releases.

As a result, the Dow closed up another 50 points at 15,100.

Stock Market Trading

: 08 May 2013

European equities are set to open marginally higher as a strong finish in the US and a surge in Chinese trade growth is likely to keep the bulls ticking over.

However, unlike previous rallies to all-time highs, the bulls still seem to be a long way from irrational exuberance.

When the Dow surged to new highs in 2007, US Treasury Secretary Hank Paulson stated that 'This is far and away the strongest global economy I've seen in my business life time'.

Now compare that to the current US Treasury Secretary Jacob Lew who last month said 'This is not a time for complacency. Tail risks have receded recently, but global growth remains weak, and unemployment is still too high'.

His comments resembled the current sentiment amongst investors and, whilst overt bullishness marked the top in 2007, the lack of it in 2013 may point towards higher prices.

Many traders remain bearish and a lot of money remains on the sidelines. Until they capitulate and everyone starts sounding like Hank Paulson, the top may be some way off.

Although the fundamentals don't justify current valuations on their own, global efforts by central banks are doing a good job of inflating them.

The Dow Jones and other world indices were also given fresh impetus following Tuesday's strong German factory data.

The S&P 500 has now closed at all-time highs for four consecutive days and this demonstrates the faith that investors have in equities compared to other asset classes.

Stock Market Trading

: 07 May 2013

European equities are set to open flat as traders wait for further cues.

Post Non-Farm Payroll euphoria has proved to be fairly short-lived and, even though US indices have ground higher overnight, markets are now on the look out for their next reason to rally.

Despite the headline figure beating expectations, a cursory look at the data has sparked some scepticism.

The majority of the jobs created were temporary jobs in the Leisure/Hospitality sector, not exactly the secure, long-term, high paying jobs symptomatic of a strong recovery.

Closer to home, yesterday's weak PMI Services data across Europe indicated that there is unlikely to be any good news coming from the economy any time soon.

With perfect timing, Mario Draghi was on hand later in the day to remind traders that central banks have got their backs, suggesting that if the data continued to worsen it could be cause for another rate cut.

The S&P 500 closed at another record high overnight as US indices continue to look strong, although the index has fallen back a few points in Asian trading.

It seems that the markets are still feeding from the better-than-expected jobs data on Friday and the continued stimulus from central banks.

As a result, many investors still see equities as being relatively attractive compared to other asset classes.

By Jonathan Sudaria, 17 May 2013

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