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The day of the four witches divides the stock markets. European stock markets are rising, Wall Street is in the red. In the financial rooms, the third Friday of the month (which in turn coincides with the quarter, therefore March, June, September and December) is so called because it can play bad tricks.
Mountain of expiring derivatives
Because it is a particular day in which a mountain of derivative contracts expire at the same time: futures and options on indices and shares. It’s as if you drew an accounting line every quarter. The positions taken expire and investors are asked to decide whether to renew their position for the next three months (either upward or possibly downward) or whether to remain on the sidelines. Therefore these sessions tend to be more volatile. It is no coincidence that the Vix index – which measures how much it costs to insure with options on Wall Street – rose by 4% to 15 points. The technology Nasdaq dropped 1%. The S&P 500 is also in the red (-0.6%). Things are decidedly better in Europe with the Ftse Mib of Piazza Affari at +0.6% close to 34 thousand points and the Dax 40 of Frankfurt launched to new highs above 18 thousand points . European stock markets have been outperforming US stock markets for a few sessions.
I fondi «long only»
It cannot be ruled out that long only funds (those which by statute cannot take downward positions, nor remain too liquid by disinvesting a large part of the capital) are defending themselves by rotating investments. Therefore taking profits from the sectors that pushed the boat the most in the first part of the year (technological, communication services and discretionary consumption) to the advantage of other sectors (basic materials, industrial and energy). The rotation is also geographical, to the benefit of those lists that present more interesting multiples such as the European ones (14 times profits) and the Chinese area (9 times profits).
The test bench on Monday
«The test of the “four witches”, however, will be on Monday. The technical expiry of derivatives on Friday acts in a certain sense as a magnet on certain price ranges, binding operators to the positions previously taken – explains Nicola Para, professional trader and expert in the financial options market -. From Monday this constraint will no longer exist and operators will be freer to make a decision. At that point we will find out whether the market wants to take a new direction, perhaps correcting after the recent strong rise which has continued without pause since the end of October, or will have the strength to continue in the current trend. Very often on the Monday following the “four witches” the market reveals its cards. We’ll see”.
The bond market
Meanwhile, investor distrust continues on the bond market, in the wake of the above-expected producer price data published on Thursday. The 10-year Treasury yield rose to 4.3% (50 basis points higher than 3.8% at the beginning of February). German Bund rates are also rising (2.91%) which clash with the good momentum of the Frankfurt stock market which, as mentioned, is continuing to reach historic highs despite the weakness of the local economy.
Silver and copper shot
Among raw materials, we note the rise in silver (+2.5% to 25.5 dollars) which usually follows the rise in gold (which in recent days has come close to 2,200 dollars an ounce). Copper also continues to rise (+2% to $4.13), also aided by the partial return of investor confidence in Chinese stocks which have recovered 15 percent from the lows at the end of January.
The recent jump in raw materials could lead to a return of inflation which in the United States has recently been described as “sticky” and “stubborn”. All this could complicate the process of reducing central bank rates. The rate cut in July is not so obvious.
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Vito Lops
social media editor and finance editor
