This week there is going to be a long-awaited meeting at the United States Federal Reserve (FED) in which interest rates can be lowered. This is at least the intention of the current US president. Donald Trump who is pushing for this measure to be put into effect. At a time when dark clouds are looming over the international economy and despite the good performance of the economy in the United States. In any case, at the end of the week there will be a decision, one way or the other.
It will be a determination that will have a direct impact on the equity markets. Both on one side and the other of the Atlantic and from which thousands and thousands of small and medium investors will be pending. In order to make a decision on whether they should open or close positions in the different equity markets. Precisely at a time when stocks around the world can turn their current trend. With which it will be necessary to change investment strategy to optimize operations.
On the other hand, it should be noted that this decision of the United States Federal Reserve (FED) may also influence monetary policies of the euro zone. Although in this sense, they have already indicated that interest rates will not change, at least until the first half of next year. Due to the poor prospects for economic growth in the euro zone for the next few years. Where the price of money is at its lowest levels in recent years, precisely at 0%. That is, money is worth nothing and this is something that also has an impact on stock values.
Rate hike in the United States
In this sense, it must be remembered that the United States has raised its interest rates 0,25 points, from 2% to 2,25% yearly you are currently in. Interest rates are one of the most powerful tools central banks have in their hands to carry out their monetary policy. Among other reasons, because a rise in interest rates serves to curb inflation and protect the currency, among other functions. Hence the importance of the measure that the United States Federal Reserve can take this week.
It cannot be forgotten that this variation is the first to occur since September 27, 2018, when the Central Bank raised interest rates by 0,25 points, reaching levels of 2%. If the drop in interest rates it could be carried at a quarter point intensity to return back to 2% levels. Cuts of greater intensity are not expected as they could be very poorly received by small and medium investors. Especially because it would indicate that the recession could be more virulent than expected by financial analysts.
How will it influence the stock market?
One of the factors that most concern small and medium investors is the impact of this monetary measure on the equity markets. In this sense, everything seems to indicate that it will not have a very violent effect on the main stock market indices around the world. Perhaps in the short term some movements, buyers or sellers, can develop to return to normal in the coming days. Where, once again, it can be the values of the banking sector the worst hit in international equities. In a year in which they have clearly lagged behind other business segments, such as electricity.
While on the other hand, it is also necessary to emphasize that the financial sector is showing prices at almost historical lows. But it could be a serious mistake to open positions because their prices can go even lower than they are at the moment. From this point of view, it cannot be said that their prices are cheap in the current international context. Not in vain, there are many questions to be solved from now on. And for this reason there will be no choice but to be absent from their positions at least for the months that remain until the end of the year.
Slightly bullish effect
In principle, a drop in interest rates by the United States Federal Reserve could have an effect moderately bullish in equity markets. But with a very limited duration since it could be reduced to a few trading sessions and little more. Unless the drop in rates in the United States was with an intensity not foreseen by the main financial analysts. In which case, there is no doubt that a scenario quite different from the one indicated in this information would occur.
There is a golden rule in the stock markets that says that the fall in interest rates favors the rise in the equity markets. Among other reasons, because there is a greater liquidity to make investments in the different financial assets. Among them, the purchase and sale of shares on the stock market. Which is, after all, what interests small and medium investors. Above other series of technical considerations and perhaps also from the point of view of the fundamentals of the stock market values.
Change in trend in indices
Either way, everything seems to indicate that a turnaround is in the making in equity markets around the world. To go from bullish to bearish, as some indicators of special relevance are pointing out. It would be the opportunity to reap the benefits for people who have their investments in positive territory. Especially before the arrival of the next summer holidays. A few months that are certainly not very sensitive for significant rises in stock indices to develop. If not rather the opposite, as has happened in recent years.
While on the other, we must also count on the clear slowdown that exists in the main economies of the world. It is very strange that stocks have remained at such high levels in the first half of this year. Where, for example, the Ibex 35 still stands above 9.000 points and with a small revaluation in this year. Despite the falls in recent weeks from the resistance that has around 9.400 and 9.500 points.
Opt for defensive stocks
According to the opinion of a good part of the financial analysts, everything seems to indicate that in the end the downward path could be the resolution in the equity markets. For this reason they advise taking positions in more defensive values that they can take a better behavior than in the rest. In any case, everything indicates that the downward turn seems to be a matter of days, weeks or perhaps a few months. Depending on the many variables that can be developed from these precise moments and that will be the ones that will determine the intensity of these movements in the financial markets.
Nor can it be forgotten that state equities have been at their all-time highs until a few days ago. Under a Uptrend that began in 2013 and that has not stopped rising in this long period of time. Despite the fact that the logical corrections have been made in the conformation of their prices.
Issuance of securities in the euro zone
The year-on-year growth rate of the outstanding balance of debt securities issued by residents of the euro area was 2,3 in April 2019, compared to 2,4% in March, according to the Bank of Spain. While on the other hand, and with regard to the outstanding balance of listed shares issued by residents of the euro area, the rate of YoY growth decreased from 0,4% registered in March 2019 down to 0% in April.
Gross issuance of debt securities by euro area residents totaled € 634,5 billion in April 2019. Amortizations were € 650,8 billion and issues were net were -16,2 billion euros. The annual growth rate of the outstanding amount of debt securities issued by euro area residents stood at 2,3% in April 2019, compared with 2,4% in March. . Wherein, the interannual variation rate of the outstanding balance of long-term debt securities at a variable interest rate stood at -1,8% in April 2019, compared to the -2,7% registered in March. The rate of YoY growth decreased from 0,4% registered in March 2019 down to 0% in April.