Global equity markets continued their growth on Friday. The U.S. stock indices such as the Dow Jones and S&P 500 set historical highs. They have been gradually rising for more than a year. As a result, the VIX volatility index, also known as the "measure of fear," fell to its lowest level since February 2007, 10.73 points.
The VIX index is calculated by the Chicago Board Options Exchange (CBOE). Historically, the low values of this index can implement the trend correction. The growth in stock prices on Friday occurred because of the positive economic data from the United States. The NFP for May was in line with expectations and reached 217 thousand. Thus this figure exceeds the level of 200 thousand for the 4th month in a row for the first time since January 2000. Today, we do not expect any significant economic data from the U.S. American futures indexes are "in the red."
The European stocks indexes rose on Friday and continue to rise slightly today. In our opinion, they are still trying to win the ECB rate cut back and move in line with the global trend upwards. The Stoxx Europe 600 is traded with the «price to projected earnings» equal to 15.5. This is the highest level since 2009, which may mean it is approaching a fundamentally overbought area since prices are in advance of corporate earnings. However, this factor will greatly affect the market only when the Q2 reports come out. Note, in our opinion, there will be no critical economic data in the EZ released on Thursday.
The Japanese Nikkei continued to rise along with other global indexes. Its rise was also attributed to the upward GDP growth figure revision for the first quarter, to 1.6% from 1.5%. In annual terms, the Japanese economy grew by a solid 6.7%. In addition, the consumer confidence index rose in May to 39.3 - better than expected. Note that this is the first increase in six months. More significant Nikkei growth was prevented by the yen (USD/JPY) strengthening.
On Sunday, good data was released on the Chinese foreign trade front. It can support the commodity futures since China is the largest commodity consumer in the world. Its trade surplus rose in May to its highest level in 5 years and reached $35.92 B., which is approximately 1.5 times more than expected. Note that this growth occurred largely due to a reduction in imports. This had a negative impact on the prices of the relevant goods. Thus, copper imports to China fell in May to 15.6% compared to the April level of 380 thousand tons. Copper fell today for the fifth day in a row due to the investigation of the Qingdao Seaport credit conditions by the Chinese authorities. US Soybean imports decreased by 8.2% compared to the April level of 6.5 million tons. Oil imports fell by 9.4% to 6.14 million barrels per day. Note, that unlike other commodities, the oil price has not fallen because of reduced demand from China.
As it was anticipated in the previous review, wheat rose for the second consecutive day. Market participants fear the reduction in the winter wheat crop in the U.S. due to the bad weather conditions and covered their short positions. There is drought conditions observed in Texas, Oklahoma, and Kansas. The official U.S. forecast for the crops will be released on Wednesday.
The cotton price continued to decline due to the post about additional agricultural land planted with the crop in India a- an increase of 3.4% to 12 million hectares, which was a rise for the first time since 2011. Note that cotton in India costs $0.8773 per pound, slightly more expensive than the U.S. price of $0.8488. Cotton prices plummeted since early May by 15%. This was due to the 64% reduction in Chinese imports in the first quarter of this year since China decided to sell a part of its old cotton stocks. We do not rule out a price reversal when the selling is complete. The International Cotton Advisory Committee predicts the cotton crop to decline in China in the season 2014-2015 by 10% to 6 million tons due to a possible drought. Simultaneously, the Indian Cotton Association expects a decline in cotton imports from India by 300 tons compared to 2013-2012.