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

giovedì 28 luglio 2011

Market Comment - July 28

(Marco Bonelli) Was the 198 point decline in the Dow, the 27 point drop in the SPX and the 75 points slide in the Nasdaq, which at the same time was the most broad-based sell-off on the third highest down-volume in almost 12 months, an indicator for more to come? By the way, the selling also happened across all securities, stocks, bonds and commodities, which didn't happen to that degree in a year.


The sluggish trading earlier this week already triggered some questions how the big picture really looks like (compared to the small (daily) picture where the fundamental, technical and sentiment state changes almost on a daily base). Given the big picture as it currently presents itself, the risk is out there that the major indexes stage another correction from here, break through the lows from March and June this year and at least revisit the levels from April 2010, 8% or more down from current levels over the next few months!

Almost all headlines blamed the gridlock situation in Washington for the selling and a few voices say that the market is starting to discount a possible downgrade or default.


-  First, it's true that the budget and debt-ceiling discussion reached a point where only a lousy compromise and postponement of major decisions will avoid that the United States runs out of money next Tuesday. A mediocre and downscaled compromise (which of course will then be praised by both parties as victory) will undoubtedly be a negative as the uncertainty remains and the credibility of politics diminishes.

-  Second, it's doubtful that anybody is able to frame the impact of a possible downgrade or default on the economy and on the markets, something that only happened once in the history of the United States (1933).

-  Third, it's doubtful that only the fiscal mess can be blamed for heavy selling, that pushed the Dow, SPX and Russell 2000 below their 50 and 100day MAs and within one percent of the famous two-year uptrend that got defended in June after a 8% correction over six weeks.

The prolonged slow macro-economic environment ('soft-patch' is probably no longer the right description) probably has an equal share in yesterday's selling as investors get presented more and more indications that the expected recovery in 2H will be pushed out towards the end of the year. A cyclical slow-down in global manufacturing, ongoing deleveraging and austerity measures in Europe and soon the US are taking effect.

To put things into perspective: Going into the Q2 earnings season, the risk was that Q2 earnings and Q3 outlooks could disappoint. As global economic growth started slowing more in June (summarising what many US industrial companies already voiced, EMR said yesterday that US and European economies have "clearly slowed" in the past two months, and that it had "seen a definite weakening of general business activity in June and July."), Q2 earnings turned out quite strong which triggered a market rally end of June, beginning of July and lifted all major indexes back to the highs of the bull-market and turned around the mentioned 8% correction within a handful of trading days. Now after the dust settled, was the rally real? Maybe not. Mostly negative investor sentiment and short-covering were the main contributors; lack of up-volume and lack of leadership completed the picture. Although the fear of disappointing Q2 earnings was unjustified, the caution regarding Q3 outlook turned out to be right. A lot of Q3 outlooks companies provided in the past two weeks was quite cautious. This and the global macro-economic environment go hand in hand. On top of that, investor sentiment, although not entirely bullish, also improved during the last weeks, so no longer really acts as contrarian indicator.

Given the big picture outlook, selling any strength (either a rebound today on back of a "great" weekly jobless claim number or in the upcoming days on back of any announcement from Washington) may turn out to be a good idea. Having said that , while a full exposure to equities poses a lot of risk, keeping or buying positions in special situation could still be rewarding.

Trade well.


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

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