American stock indices drop as European ones rise - 6.8.2014

American stock indices dropped as the European ones rose on Tuesday. Trade turnover on US stock exchanges was a bit lower than the month average. US macroeconomic data turned out to be positive. A negative stock market reaction was caused by the reduced profit forecast of Target, a retailing company, and an announcement of the Russian troops concentration near the Ukraine border.

Some investors feared the aggravation of political tension, or even the military action outbreak. Although none of this happened, futures on American stock indices are still “in the red” now. A good quarterly report of Walt Disney came out after the trade closing. Yesterday, Services PMI in July reached the highest level since December 2005. The growth in Factory Orders was the highest since November 2010. Thus, the economic information favors the American economy recovery, which adds the possibility of the Fed rate hike. Investors expect the GDP to grow 3% in the third quarter. Note that all of these factors have a positive effect on the American dollar rate, which rose to the 11-month high. Today we expect the release of the US trade balance for June at 12-30 CET. The forecast proves to be neutral, but in case of unplanned deficit increase, the dollar may weaken, and stocks may continue the downward correction.

European stock indices rose yesterday. Good data on Retail Sales for June in the EU contributed to this increase. Moreover, the markets closed before the US negative information was released. It is logical that today they are reducing considerably, indicating the American indices downtrend rebound. Previously, we have repeatedly stated that the Ukraine situation aggravation is causing more negative impact on European markets than the ones in the United States, since Ukraine borders the EU. The German Factory Orders in June reduced to the lowest level since September 2011, considered as an additional negative factor. This information was released in the morning. Macroeconomic indices of individual EU countries and the UK are to be published today at 9-00 CET.

Nikkei is falling along with other world stock indices. As an additional negative factor, SoftBank Corp stocks slipped 4.8% after its subsidiary Sprint Corp canceled the merger with T-Mobile US Inc.

The US oil reserves may decrease by 5.5 million barrels this week, according to forecasts of American Petroleum Institute. Then it will be a more significant drop than expected by market participants. Official data, as usual, are to be released today at 14-30 CET. Yesterday, oil prices dropped at a very modest trade volume, 20% less than the 3-month average. As we have previously mentioned, reduced oil prices, along with the sanctions can be considered as another factor of the economic pressure on Russia.

Precious metals show a slight increase amid the rising political tension in Ukraine. We suppose that the American currency strong consolidation contributes to this fact. Silver prices dropped as the global sales of investment coins in the second quarter reduced by 23% compared to the same period last year, according to the GFMS agency report.

Wheat prices are jumping considerably for the sixth day in a row. Market participants fear that the rainy weather in France, Germany and Ukraine may damage the future harvest and, in particular, increase the proportion of feed grains. According to the Ukrainian agency ProAgro, in Ukraine the harvest will increase from 25-30% last year to 35%.

Soybean prices slipped slightly yesterday. INTL FCStone and Farm Futures Magazine expect the US crop for this season to be 3,865 billion bushels and 3,857 billion. bushels, respectively. This is higher than the USDA official forecast. The situation is similar to the corn crop forecast of these companies. It amounts to 14,455 billion bushels and 14,331 billion bushels, and that is also above the USDA expectations.