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Global stock markets started the week on a positive note, but I am not sure if it will last for a number of reasons. Basically, the global stock market has little to celebrate, especially the US and European markets. Before I explain why, I am convinced that stock markets have less than a 5% chance of increasing over the next two weeks.
Let's look at the performance since the beginning of the year. The S & P 500 index is up 18.74%, the Dow 16.4% and the Nasdaq 22.78%. The Eurostoxx 50 index has climbed 15.95% since the beginning of the year, the FTSE100 index of 11.6%, the CAC 40 index of 17.37% and the DAX of 16.11%. There is no doubt that these are phenomenal gains, however, this is where bulls are likely to be disappointed.
The question is, what is the opportunity if the stock market is going to face a moderate or bearish trading trend.
Well, the CBOE volatility index is an interesting place to start. The index has fallen by almost 43.16% since the beginning of the year and the equivalent for the European Stoxx, the VStoxx index, has dropped 42.60% since the beginning. Just Friday, the CBOE volatility index jumped 6.80% and I think there is still a lot to come.
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- The key Event because this week is the meeting of the European Central Bank and we hope the bank will be immensely dovish in its tone. It is believed that the bank will not let the powder dry, this time a 10 basis point reduction in interest rates is likely. This price is already integrated in the market and I think the market could be disappointed because the tone of the ECB will not be as accommodating as expected.
- In the United States, last week, we saw US banks release poor quarterly results. In other words, there was little to celebrate. US banks have not been able to help the bullish sentiment. It is then that the US economy is in a much better state than the EU: it is therefore their balance sheets. European banks have little hope of pushing the markets higher because of their profits. My model indicates that European banks will suffer more from their financial results because of low trading revenues.
- The second biggest bullish scenario for the markets, again, is fully taken into account by the Fed, which seeks to reduce its interest in stimulating growth. Now, a 25 basis point reduction in interest rates is the best thing the market will get. If you expect a 50 basis point reduction, you have to live in a coucous country.
- Donald Trump, the president of the United States, is not the kind of person to give up the current trade war between the United States and China anytime soon. A small agreement is expected, and it is there that it stops, at least for the moment. Do not be surprised if he starts putting rates on other countries and that merchants have not set the price of this item at all.
- The results could be surprising during this week of gains in technology, which could trigger a positive reaction, but this will probably not last long, because the forecasts for the second half estimates will be moderate.
To conclude, I think most of the positive news has already been announced and market players have not thought much about the other side. Therefore, I feel that the risk is downward biased and that this measure may be more violent than before.
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Global stock markets started the week on a positive note, but I am not sure if it will last for a number of reasons. Basically, the global stock market has little to celebrate, especially the US and European markets. Before I explain why, I am convinced that stock markets have less than a 5% chance of increasing over the next two weeks.
Let's look at the performance since the beginning of the year. The S & P 500 index is up 18.74%, the Dow 16.4% and the Nasdaq 22.78%. The Eurostoxx 50 index has climbed 15.95% since the beginning of the year, the FTSE100 index of 11.6%, the CAC 40 index of 17.37% and the DAX of 16.11%. There is no doubt that these are phenomenal gains, however, this is where bulls are likely to be disappointed.
The question is, what is the opportunity if the stock market is going to face a moderate or bearish trading trend.
Well, the CBOE volatility index is an interesting place to start. The index has fallen by almost 43.16% since the beginning of the year and the equivalent for the European Stoxx, the VStoxx index, has dropped 42.60% since the beginning. Just Friday, the CBOE volatility index jumped 6.80% and I think there is still a lot to come.
Many are already taken into account
- The key event this week is the meeting of the European Central Bank and it is hoped that the bank will adopt an extremely dovish tone. It is believed that the bank will not let the powder dry, this time a 10 basis point reduction in interest rates is likely. This price is already integrated in the market and I think the market could be disappointed because the tone of the ECB will not be as accommodating as expected.
- In the United States, last week, we saw US banks release poor quarterly results. In other words, there was little to celebrate. US banks have not been able to help the bullish sentiment. It is then that the US economy is in a much better state than the EU: it is therefore their balance sheets. European banks have little hope of pushing the markets higher because of their profits. My model indicates that European banks will suffer more from their financial results because of low trading revenues.
- The second biggest bullish scenario for the markets, again, is fully taken into account by the Fed, which seeks to reduce its interest in stimulating growth. Now, a 25 basis point reduction in interest rates is the best thing the market will get. If you expect a 50 basis point reduction, you have to live in a coucous country.
- Donald Trump, the president of the United States, is not the kind of person to give up the current trade war between the United States and China anytime soon. A small agreement is expected, and it is there that it stops, at least for the moment. Do not be surprised if he starts putting rates on other countries and that merchants have not set the price of this item at all.
- The results could be surprising during this week of gains in technology, which could trigger a positive reaction, but this will probably not last long, because the forecasts for the second half estimates will be moderate.
To conclude, I think most of the positive news has already been announced and market players have not thought much about the other side. Therefore, I feel that the risk is downward biased and that this measure may be more violent than before.
