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Weekend with doubts

S&P 500, Nasdaq, Dow Jones and Russell: Weekend with doubts

A bad week is closing for the markets on both sides of the Atlantic and once again the IBEX 35 index is the one with the worst performance, with a decline of 3.08% and closing at 8,506.

In Europe all indices have closed in red, the DAX with a decrease of 0.94% and the EURO STOXX 50 of 0.67%.

In U.S.AIt has also been a bad week with falls of 0.97 on the S&P 500, 0.98% on the NASDAQ 100 and 0.52% on the DOW JONES Ind Average.

S & P500, Dow Jones, Nasdaq, Dax, Euro Stoxx, Ibex 35: weekly variation

S & P500, Dow Jones, Nasdaq, Dax, Euro Stoxx, Ibex 35: weekly variation

S & P500, Dow Jones, Nasdaq, Dax, Euro Stoxx, Ibex 35: weekly change

It is worth highlighting the falls of the US banks that, even publishing better than expected results, have been weighed more by the decreases in the yields of the Treasury bonds. As can be seen in the tables below, the yield declines have also affected European banks:

Spanish banks, European banks and United States banks: weekly variationSpanish banks, European banks and United States banks: weekly variation

Spanish banks, European banks and United States banks: weekly variation

However, banks have not been the worst sector in the US since the largest decrease has been suffered by the Energy sector of the S&P 500 (XLE) with a drop of 7.89% followed by the Consumer Discretionary sector which has left a 2.45%.

In Europe, the worst sector of the Euro Stoxx 600 has also been Energy (Oil & Gas) with a drop of 4.29% followed by Travel sector (-4.26%).

In the IBEX 35 only 3 companies have saved the week positively, the three are electric: REE (Red Eléctrica) (1.59%), Naturgy (Natural Gas) (+ 0.50%) and Iberdrola (+0.15 %)

SITUATION

FED, Bonds, inflation, economic recovery and oil

Jerome powell (President of the FED) insists over and over again, the same as Janet yellen (Secretary of the Treasury) that inflation will be transitory, but they acknowledge that it will last a few months.

Yellen seems to have forgotten that she is no longer the President of the FED pressing with her statements and public statements and her changes of opinion do not fit, three months ago she said “I do not see inflation” when a good number of analysts already feared it and we commented on it from these lines and on July 15 he said “I believe that significant inflation will continue for many more months.” The reliability of his claims is in question.

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Inflation and bonds

On the one hand, inflation expectations have fallen as reflected in recent days with the declines in the yield of the bond markets, mainly the 10-year Treasury bond that reached a minimum of 1.25% on July 8. The week closed at 1,300 which has been the worst close since February 17.

Return Treasuty Bond 10yReturn Treasuty Bond 10y

Return Treasuty Bond 10y

On the other hand, some kind of distortion could be taking place if we look at the evolution of the Bloomberg Commodity index of raw materials, which has remained in the maximum zone since the end of July 2015:

Bloomberg Commodity Index Bloomberg Commodity Index

Bloomberg Commodity Index

On the other hand, Harnett, head of strategy at the Bank of Amreica, remains firm in his position regarding inflation, he remains convinced that in the second half of this year, there will be stagflation, that is, economic stagnation and high inflation.

Petroleum

The declines in crude oil due to disagreements in OPEC + make it possible for there to be imbalances in the control of production and consequently, falls in oil prices are taking place. Depending on how long the disagreements continue and the cruder market comes out, it will positively affect the slowdown in inflation.

The expectations of lower demand due to the slowdown in the economic recovery affected by the outbreaks in the pandemic and the mobility limitations that they imply also affect crude prices.

Since the OPEC + agreements were broken and despite a subsequent agreement between Saudi Arabia and the United Arab Emirates, WTI oil futures prices have fallen sharply after peaking at $ 76.98 on July 6 to $ 71, 45 at the close of Friday, a significant decrease of 7.18% at the close, a decrease that reached 8.53% at the low of the session.

Oil Future Daily ChartOil Future Daily Chart

Oil Future Daily Chart

Recently, the 60-day correlation reached the most negative value since 2005, as the initial reaction to the OPEC + disputes sent oil prices higher. Looking ahead, the traditional relationship is likely to reassert itself. If crude has peaked, the issue of bond yields and profitability thresholds will remain lower for longer.

The following Bloomberg chart shows the correlation between the 10-year Treasury bond and oil.

correlation Treasury bond to 10 years and petroleumcorrelation Treasury bond to 10 years and petroleum

10-year Treasury bond and oil correlation

You can ask yourself the following question: What do Americans do when the prices of homes, cars and durable goods go up? Simply asking for a raise and that has its price implications.

At the moment, there are opinions regarding inflation for all tastes and investors, although fearful, still continue to believe Powell’s messages.

The European Central Bank (ECB)

In Europe, the ECB could limit changes in its monetary policy at its meeting on Thursday next week, leaving decisions on future bond purchases until the economic outlook clears (according to Bloomberg).

The ECB will have to adapt its language on interest rates, asset purchases and other tools to a new inflation strategy that allows prices to grow moderately above 2% – the target going forward – for some time. A Bloomberg survey of economists finds that the bank will likely limit changes in its monetary policy to words at next week’s meeting until the economic outlook is clearer.

COVID outbreaks

The outbreaks of the pandemic due to the variants of COVID worry the markets about the return of restrictions and affects the travel and tourism sectors again.

TECHNICAL SITUATION

The declines in stocks

According to Bloomberg, from Goldman Sachs they say that we should not give too much importance to the volatility of the stock market on Friday, especially in relation to the technology giants, since they say that it is probably only a short-term side effect of a rise record in options trading.

USA

From a long-term technical analysis point of view, the situation is still bullish, no major support has been broken, but in the short term the look is not so rosy.

The technological indices continue with their divergences and giving scares or slowing down the markets, giving rise to the lateralization of prices. Wing formation is a time-consuming way of correcting and this cannot be lost sight of, but as you can see, no level of control has been lost.

S&P 500, DOW JONES Ind, NASDAQ 100 and Russell 2000 on weekly chartS&P 500, DOW JONES Ind, NASDAQ 100 and Russell 2000 on weekly chart

S&P 500, DOW JONES Ind, NASDAQ 100 and Russell 2000 on weekly chart

S&P 500, DOW JONES Ind, NASDAQ 100 and Russell 2000 on weekly chart

Although the control levels on the weekly chart have not been broken, the technical aspect of the daily charts are not so promising, I am not saying that a correction has begun but there is a transfer as there is a downward turn in the main indices. Only the breaking of the control levels in the main indices would lead them to a correction and we will have to be attentive to the next FOMC meeting on July 28 because there could be some negative as well as positive surprises.

S&P 500, DOW JONES Ind, NASDAQ 100 and Russell 2000 on daily chartS&P 500, DOW JONES Ind, NASDAQ 100 and Russell 2000 on daily chart

S&P 500, DOW JONES Ind, NASDAQ 100 and Russell 2000 on daily chart

S&P 500, DOW JONES Ind, NASDAQ 100 and Russell 2000 on daily chart

Europe

The situation in Europe forces us to turn our attention to the DAX that located in the upper part of the side, in the zone of maximums, if it lost 15,300 points and the rest of the indices continued to fall, a correction could begin.

In the event that it does not fall, the divergence is bullish and could take the EURO STOXX 50 higher again.

In the DAX The 50 session moving average is acting as a reliable support, but there are already many times that it has been supported by it and the closing of Friday stayed right there, so be careful, I am not saying that you have to sell but be very attentive .

DAX, EURO STOXX 50, CAC 40 and IBEX 35 on daily chartDAX, EURO STOXX 50, CAC 40 and IBEX 35 on daily chart

DAX, EURO STOXX 50, CAC 40 and IBEX 35 on daily chart

DAX, EURO STOXX 50, CAC 40 and IBEX 35 on daily chart

The Ibex 35 has a very negative technical aspect, but it is supporting a support zone from which, if they support the banks, it could bounce.

IBEX 35 & # xa0; on daily chartIBEX 35 & # xa0; on daily chart

IBEX 35 on daily chart

IBEX 35 on daily chart

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