Market participants regain from substantial political tension reduction in Ukraine | IFCM Hong Kong
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Market participants regain from substantial political tension reduction in Ukraine - 19.8.2014

World stock indices boosted on Monday. Only NASDAQ has updated the 14-year high, meanwhile the other indices have not even reached the July levels yet. Market participants continue to regain from a substantial political tension reduction in Ukraine.



Moreover, they had a positive reaction on NAHB/Wells Fargo Housing Market index growth in August for the third time in a row. It is usually paid little attention, but this time this index increase outperformed the forecasts before the official data release. The July data on New Home Sales and Building permits is to be announced today at 12-30 CET in the United States. The forecasts prove to be positive. We do not leave out the fact that buying yesterday was connected with the expectations of positive statistics. Of course, there was a rise in stock prices of such construction companies as PulteGroup Inc (+ 2.8%), DR Horton Inc (+ 1.4%) and others. Amid the US oil prices drop to the lowest level since the beginning of the year, there was a rise in quotes of United Continental Holdings (+4%), Delta Airlines (+2%) and others. Due to the possible merging of the two American retailers Dollar General Corp (+ 12%) and Family Dollar Stores Inc. (+ 5%), the stock prices of the trade sector companies ticked up. However, all these events could not increase the investor activity. The volume of trading on the American stock exchanges yesterday was 14% lower than the 5-day average, and 12% lower than the 3-month average. Note that along with the real estate market indicators, the July CPI is to be released today in the United States. The prior forecasts are also considered to be positive. Currently, futures on American stock indices are traded "in the black".



The growth of US dollar rate against the euro should be noted. We will try to explain this with the help of two factors. Firstly, the statistics still proves that the American economy is stronger than the European one. Secondly, the speeches of the Fed and the ECB chairmen will be given at the end of the week, at the annual meeting in Jackson Hole. The United States is interested in the dollar strengthening, and so the monetary policy tightening is being conducted; and the ECB – in the euro depreciation, and a further monetary policy easing is being planned. Probably, such a stand is confirmed in the speeches of Mario Draghi and Janet Yellen.

European stock indices are growing for the second day in a row, but they are still far from the values of late July highs. The data on the EU foreign trade yesterday was better than expected. The Q2 earnings season of European companies is almost over. In January, investors expected that the total profit for the entire year would amount to 11.8%. Now they lowered the profit forecasts to 5.4%. However, the dividend payouts are expected to hit the 5-year high. Now the average dividend yield of European stocks makes 3.3%. That is higher than the same indicator performance in the U.S., which makes up 2%, and higher than the world average of 2.4%. No special important economic data is expected today in the EU. Positive inflation data for July was released in the UK at 8-30 CET. This data limits the probability of a fast rate hike by the Bank of England, and also caused a further pound weakening. The FTSE 100 stock index rose.

Nikkei is increasing along with the other global indices. The morning economic data, which we wrote about yesterday, appeared to be positive. Skymark Airlines quotes boosted 28%, after the reports of a possible financial aid from the largest low cost airline AirAsia. Previously, Skymark Airlines ordered six Airbus aircrafts, but failed to pay them all. The important data on foreign trade in Japan in July is to be released tonight at 23-50 CET. In our opinion, the tentative forecasts seem to be positive.



China granted a permit for gold imports to another three banks, and now there are 15 of them. Now Shanghai together with Singapore can compete with London in precious metals trading. Also an increase in the purchasing volume is expected. In our opinion, it provides support for gold prices as the US dollar and stock markets strengthen. Usually, gold moves as their “counterpart”. One more factor for the price increase of precious metals can be considered a strong demand for palladium, which is used as automotive and chemical catalysts. Its price has risen 25% since the beginning of the year and reached the 13-year high. Market participants emphasize that the palladium demand is almost one and a half times higher than the supply.

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