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

lunedì 17 ottobre 2011

Market Comment - October 17

(Marco Bonelli) So if Greece isn't able to pay interest and principle of its roughly Euro 330 Billion outstanding loans, it's called default. If one of the "master"-elements of the European "master"-plan includes a 50% (or whatever) debt reduction for Greece because the country is not able to pay interest and principle of its outstanding loans, it's called avoiding default (...and it will definitely be an isolated phenomenon, won't even allow any way of contagion - because it will be excluded by contract)!

Also the other rumored elements of the "master"-plan that was announced to be announced by Oct 23, the next European Union summit don't suggest a real solution to the debt crisis but appear to be more a game of pushing decision responsibility away and buying time, once again.

Anyway, it's always easy to criticize from the outside, so let's just assume all these high-profile wine & dine-meetings are worth the millions of Euro in T&E expenses and let's concentrate on the Dow Jones' and Nasdaq Composite's miraculous push back into positive territory for the year.

Once again, the recipe for the current rally was a perfect combination of washing out last hopes by breaking down to new lows two weeks ago, at the same time hitting major, long-term technical support-levels for many major averages but also sector indexes, a few slightly better than expected economic numbers (that immediately raised hopes that the US economy may avoid a recession) and a few slightly more decisive remarks out of Europe (that immediately raised hopes that the European debt crisis will be over soon). Therefore the 14% rally in the SPX and the 20%plus rally in many sector indexes and the technology sector in particular was definitely pursuable. A lot of indexes already broke the highs from the rebounds in August and September and also cleared other technical resistance levels which further fed the rally.

Let's finally get to the point and ask the question where we go from here. Ok, I admit it, nobody knows and it's pure speculation (surprise!). The momentum of the "road-of-least-resistance"-rally and the growing disbelief in the "too-far-too-fast"-move (didn't we have that argument in the opposite direction not too far ago) could lift prices higher, like the SPX up to the 1250/1260 level. However, so far the rally has mainly been built on hopes. If the underlying fundamentals of these hopes don't materialize, the rally lives in thin air and will eventually run out of steam.

A look at the September retail sales raises some doubts as the headline and all sub-component numbers before seasonal adjustments were down month-over months (compared to a reported 1.1% gain) and even if the statistic mirrors some strength from the back-to-school season, the beginning of a new trend appears unlikely given another drop in consumer confidence and a continued decline in real wages. Other statistics like the ECRI Weekly Index or today's release of the October Empire Manufacturing Index don't suggest a bright horizon. Regarding corporate earnings, so far the few Q3 earnings reported kept investors excited but the season just gets started and a much better picture can be painted at the end of this week after more than a 100 S&P companies reports.

Overall, positive expectations for the state of the economy and a solution for Europe have been set quite high over the past two weeks. Although some earnings expectations have been revised down, Q3 earnings are still expected to grow a healthy 13.8% (ex financials). With that, the market is probably close to a level where the risk for some downside move became quite high if expectations for the economy, for earnings and for Europe won't get met. Investors might even get an answer to that question sometime this week. Therefore, traders might lighten up positions in general and in further strength in particular while investors may wait for entry points substantially lower from here.

Trade well.

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

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