Il Primo Ministro greco Lucas Papademos riceve l'approvazione del governo su tagli al bilancio che corrispondono al 7% del Pil nei prossimi tre anni e su una ristrutturazione finalizzata a ridurre di €100 mld gli oltre €200 mld di debito detenuto dai creditori privati, atteso il voto del parlamento • Standard & Poor's declassa il merito creditizio di 34 banche italiane tra cui UniCredit a BBB+ da A, Intesa Sanpaolo a BBB+ da A e Banca Monte dei Paschi di Siena a BBB da BBB+, S&P anticipa "una redditività decisamente debole per le banche italiane nei prossimi anni" • La produzione industriale italiana aumenta a dicembre +1,4% da novembre +0,3%, oltre le stime degli economisti +0,5%, anche se i dati del quarto trimestre -2,1% suggeriscono che la terza economia della zona euro è entrata nella seconda recessione dal 2009 • I Btp decennali salgono per la quinta settimana consecutiva, il periodo di recupero più lungo in oltre cinque anni, la prossima settimana il Tesoro vende €4 mld di buoni al 6% con scadenza 2014 • L'euro cala dal massimo di due mesi contro il dollaro, il mercato azionario europeo cala dal massimo di sei settimane e l'azionario Usa registra la prima settimana di perdite del 2012 dopo che i ministri delle finanze europee non hanno concesso il pacchetto di aiuto necessario a prevenire il collasso economico della Grecia

venerdì 22 luglio 2011

Market Comment - July 22

(Marco Bonelli) What was the most exciting in yesterday's market?

I think the continuation of the outperformance of banks and the financial sector was the most interesting event. A development that started yesterday is worth following from an investment point of view but also market-outlook point of view. Going back decades banks either lead the broader market or traded right with the overall market. This trend got interrupted in September 2010 and went on and off since then, however, mostly off.

Better reported earnings, stronger balance sheets, underlying improvement in credit quality and cheap valuations are some of the reasons why investors maybe have started taking a look at the sector again (certainly, slow revenue growth, slow loan growth, capital markets volatility and small net interest margin are the factors, among others, that still act as head-wind). If the historic correlation resumes, the broader market should follow as long as banks move higher.

Beside that, investors had plenty of reasons to be positive: M&A activity, positive rumors and updates from the European debt crisis and the US debt discussion, a better than expected July Philadelphia Fed Index, better than expected earnings, Wednesday's trading that formed the base for another move higher and no new reason to move lower (all existing reasons either got widely discussed or are very vague).

With that move, the Dow Jones and NDX are back up to their highs from earlier this month while the SPX, Nasdaq Composite, Russell 2000 and S&P 400 Midcap closed just about one percent off the respective levels. As I mentioned banks, the BKX Index also has about one more percent until it reaches the six-month downtrend at 48.50. Although the last three trading days have been impressive, the real challenge gets presented when all major indexes have to break out to either new highs in this two-year old bull market or break major resistance levels. Given the recent momentum and the reasons that drove the market yesterday, chances look good that the market is able to master the challenges for now, nevertheless, let's see it happen first before we talk further.

Other observations worth mentioning:

§  Investors tend to sell the technology sector in the last two days following a brief outperformance in the rally end of June and a few days following results from GOOG and IBM. Earnings in the sector are indeed very mixed with major surprises and misses taking turns on a frequent base. As a result the general MSH Index, semis and networking sector still trade closer to their June lows than their highs from May and February.

§  A lot of classic industrial companies report mixed Q2 results and even guide the next quarter down. Results from IR, UTX, CAT, CBE and HON either disappointed or were perceived negatively. This is the group that crushed earnings estimates in the past quarters so although almost all companies talk about strong global demand the actual reports and guidance rather suggests some moderation of industrial activity than ongoing above average growth. Having said that, I also know that the 'industrial sector' is a very wide space fractured by early cycle and late cycle businesses, so it is hard to come up with a 'general' call on industrials. I also shouldn't forget pointing out strong numbers from GE and DOV.

§  Energy prices showed some signs of life, although it was probably more on back of a weak Dollar than convinced buying in energy commodities. Still crude oil briefly traded at $100, something we haven't seen in more than a month. In fact metal commodities even got sold yesterday morning following a weak manufacturing report from China. Overall, commodities consolidate at levels that represent a 50% recovery of the losses that occurred between beginning of May and end of June.

Mixed earnings, the second 1%-plus performance this week on back of positive updates in the European-debt-crisis and also US-debt-ceiling drama and technical resistance levels ahead may more point to a consolidation Friday with some profit taking but the ongoing sensitivity of the market towards any news on the political front could quickly change direction.
I'm curious if financials continue to outperform, technology continues to underperform and when the market first attempt to break out to new highs.

Trade well and have a great summer weekend.

(Marco Bonelli is the Managing Director - International for CL King & Associate in New York. The opinions expressed are his own)

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