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Global Indices Monthly Outlook – August 2017

By:
Colin First
Updated: Aug 2, 2017, 07:27 UTC

Except for the stock markets in the US, the rest of the stock markets in various other parts of the world did not have a great month of trading in July.

Stocks Finish Mixed

Except for the stock markets in the US, the rest of the stock markets in various other parts of the world did not have a great month of trading in July. The trading was choppy at best and we also saw that the markets were generally lower due to the risk and the uncertainty dominating many markets of the world. In such a scenario, it was indeed surprising that the US stock indices managed to make progress and they ended the month near their highs which signifies more gains in the coming month.

US Stock Indexes Move Higher

As mentioned above, the SPX and WS30 continued their bullish run though the markets in other parts of the world generally has a bearish month in July. Though the markets in the US were dominated by the reports of repeated bungling from the Trump administration, it seemed to have little effect on the US stock indexes. The Trump team failed to pass through even a skeletal health reform plan and this placed into doubt, the efficiency of his team and how things are going to pan out for the rest of his term.

SPX Weekly
SPX Weekly

But the stock markets in the US did not seem to bother too much and they behaved as if they were expecting such things to happen. Maybe they were buoyed by the bad economic data from the US which is an irony as the stock markets tend to fall  on bad news. But in this case, the bad news would mean that the Fed would have to delay the rate hikes further and maybe even move the next rate hike to next year as well. This was treated positively by the markets.

Also, the hike in rates from the Fed also made the US and its markets an attractive place to investors who are seeking good returns on their investments and though this was not reflected in the dollar, the US stock markets seem to benefit from it. We also had some strong quarterly numbers from many of the US giants and this helped to push the stock indexes higher.

Looking ahead, we believe that this uptrend will continue to dominate the markets in the coming month as well and we should see the SPX and the WS30 continue to move higher. This also seems to be keeping Trump and his team happy and hence we believe that this is likely to continue in the short and medium term.

European Markets Choppy

In contrast to the US stock markets, the ones in Europe had a lot of choppy trading which finally ended the month on a bearish note. These stock markets were clearly affected by all the talk of tapering from the ECB. The ECB and its President Draghi had dropped hints of tapering in their press conference and the market chose to focus on this and pushed the euro higher and began to dump the stocks in a slow and steady manner all across Europe.

DAX Weekly
DAX Weekly

This was the primary reason for the FTSE, CAC and the DAX to fall during the course of July and they never managed to stage any kind of strong bounce. Though the ECB tried to do some firefighting by insisting that tapering was not on the table yet, the market has more or less confirmed that the tapering talk is likely to arise after summer and once ECB decides to taper the QE, we are likely to face a scenario where they would not be pumping any more funds into the stock markets and this has led the investors and the traders to jump out of their trades and place the stock indexes under pressure.

Looking ahead to August, we expect the indexes to continue to remain under pressure as the markets prepare themselves for the tapering in a few months time. The DAX is likely to face some extra pressure as the German elections are scheduled for September.

Asian Markets Are Mixed

The Asian markets were choppy and at best, mixed. They did not seem too be led by any of the other global indices and they seemed to have a mind of their own. This was the reason why some, like the Indian stock index moved higher while others like the Nikkei moved lower for the month of July. Each of the Asian stock indexes seem to be affected more by the local factors than by any of the global risks and uncertainties.

J225 Weekly
J225 Weekly

Looking ahead to the month of August, we believe that the stock indexes in Asia would continue to be dominated by the local factors unless there is a major fundamental change in any of the larger global markets like the US. As long as the US and the European stock markets focus on their issues, we expect the Asian markets also to do the same.

About the Author

Colin specializes in developing trading strategies and analyze financial instruments both technically and fundamentally. Colin holds a Bachelor of Engineering From Milwaukee University.

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