Global Indices Monthly Outlook – July 2017

It was a case of 2 different tales happening in different parts of the world as the stock markets in the US continued to gain during the month of June while the European stock markets were not very sure about where they needed to be and the Asian markets were caught somewhere in between. This was in line with the happenings in the different parts of the world with much of the volatility in the markets coming from the Eurozone while the US gave data and events that were very much on the expected lines.

US Stock Indexes Consolidate

The month began in the US on a positive note in anticipation of the hike in interest rates from the Fed. Though the incoming data from the US was very weak, not only in the first week but through the course of June, the traders and investors waited in anticipation of the Fed and the Fed did not disappoint as it went ahead with the rate hike and chose the ignore the data for now. This helped to keep the bid in the US stock indexes during the early part of the month as the investors and traders were hopeful of better economic times in the US.

It also helped that Trump was busy with international engagements for most of the time in June and this helped to divert the attention away from him and helped the investors to focus on the economic fundamentals. The stock markets continued to be well bid in the US as the events in Europe unfolded and some of the events in Europe did send shockwaves through that region but the US stock markets continued to remain unaffected. But it needed to be noted that though the stock markets did not show a bearish reaction, they also did not have any strong bullishness associated with it. It was more of a consolidation with a bullish bias rather than any explicit bullish tendencies and this forced the SPX to trade within a tight range between 2400 and 2450 making it one of the tightest months as far as the range was concerned.

Looking ahead to the coming month, the investors and the traders would be looking forward to the data that would be released during the early part of the month to see if the economy is recovering and whether the data from last month was just a blip, as the Fed would like us to believe. This would be the key driver for the markets this month and with a tight ranging month in June which ended near the lows, we would expect the upcoming month to have a bearish bias.

European Markets in Turmoil

While the US stock indexes were on a consolidation mode, all the volatility and the focus was on the European stock markets. They were rocked during the early part of the month as the UK elections threw up some very surprising results in that they led to a hung Parliament when all the opinion polls had predicted a easy win for the UK PM May. This led to a lot of uncertainty and confusion in the markets and made the FTSE fall hard over the next couple of days. This not only affected the FTSE but threw the rest of the stock markets around Europe into some stress and uncertainty which kept the indexes under pressure.

Though the FTSE did manage to recover as May was able to cobble together a majority, the trend for the short term was set and the uncertainty kept the stock markets around Europe under pressure. Though the economic data from the Eurozone kept coming in stronger and stronger and helped to strengthen the euro, it did not help the stock markets much as the bigger investors chose to invest in the currencies in the hope of better returns on the back of a good economy rather than risk them in the stock markets. This, and the issues surrounding the Italian banking system, kept the pressure on the stock markets and towards the final week of June, we saw the DAX break down as a result of this selling pressure and close the month on a weak note.

We are likely to see the pain continue in the upcoming month as well as we expect the Eurozone economy to show continued signs of recovery which are likely to keep the currencies and the yields attractive. This is likely to pull away funds from the stock markets and place them under pressure in the coming month of July.

Asian Markets Have a Middling Month

Asian stock markets remained oblivious to all this volatility and we saw the Nikkie and the Hang Seng have a middling month in June. The bond buying in Japan helped to keep the stock markets supported and with not much market shaking news in any of the Asian countries, it turned out to be a strong month for the bulls in the Asian stock markets. The Chinese data also did not bring in much surprises and the economy managed to hold up well during the course of last month and this helped to keep the stock markets well bid.

In the coming month of July, we expect the stock markets in Asia to continue to remain strong as the investors prefer Asia as a financial destination and continue to pour in funds. We are also seeing India move to a new tax regime which is likely to bring in some financial stability in the long term and this is likely to keep their stock indexes pretty strong in the short and medium term.