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 27 ottobre 2011

Market Comment - October 27

(Marco Bonelli) Breaking news: The EU Summit got delayed last night because members couldn't agree on the dinner menu!

After dinner, they finally agreed to announce what has already been discussed for days and the fact that there is now any kind of decision on the table and a little bit of uncertainty off the table is probably the only positive to report. It is certainly good for a decent rally but we have to see how long the excitement lasts. Having said that, the strategy's effectiveness will depend on the details, which - don't be surprised - will have to finalized in the coming days and weeks (looking at already announced timelines by when certain part of the strategy have to be reached and the definition that a 50% haircut on Greek loans is not a default but a "voluntary restructuring" already question the effectiveness before the "master-plan" even gets implemented).

Once the "irrational exuberance" about the European deal settles that by the way plays exceptionally well into October window-dressing, how does the big picture look like?

A first look at the Q3 GDP number (helped by +16.3% non-residential fixed investments) seems to confirm the optimism that started taking hold  during the past weeks that most disappointing economic numbers are behind us and that a slow economic recovery is ahead of us (after ending 4Q10 with 2.3% growth, 1Q11 dropped to 0.4 and the economy recovered from here, 1.3% in Q2 and now 2.5% in Q3). Macro-economic numbers in the next weeks will show if the trend continues. In terms of global growth, it's hard to imagine that Europe officially does not slide into a recession (half of Europe is already experiencing one anyway) - despite the "master-plan". You see economic growth estimate reductions across the globe, with that will China be able to show enough fake demand that it can bail out the lack of growth in the rest of the world? The other question is also which sector will be the next growth driver? 2009 and 2010 was mainly driven by manufacturing, so will technology spending be the next? How long will any kind of consumer-less expansion last this time?

For the market, today's rally on top of the 15-20% the market already saw is great as it partly erases the short-term skepticism and removes the limbo. At the same time it leaves the picture vulnerable for any kind of disappointments.

Within the next few weeks (or days?), a significant correction in stock prices is possible for the following reasons:

Ø  The almost traditional change in direction in the middle of an earnings reporting season when investors check off relatively healthy Q3 earnings but sharp revisions to the downside in Q4 corporate guidance. Since October, Bloomberg recorded 273 revisions to the upside and 693 revisions to the downside for Q4 earnings estimates and the growth rate in general was reduced by 2.62%!

Ø  While many market participants look at charts as a compilation of past prices and try to predict future moves using patterns from the past, I believe, charts also have a symbolic function as they mirror the fundamentals. Many major indexes and most industry sector charts are about to face some or all of three major real and symbolic resistance levels: the broken 2 ½ year uptrend, the 6 months downtrend and the neckline from the classic head-and-shoulder pattern that formed between January and July this year. If everything goes back to where expectations have been earlier this year, then a resumption of the 2 ½ year uptrend and a reversal of the correction after the head-and-shoulder formation broke makes sense. If the fundamental picture is different than a break back into old trends won't be sustainable.

Ø  The chance of a buy-the rumor-sell-the-news type of reaction following the European deal to solve the debt crisis.

Ø  After the European crisis is "solved", sentiment will probably switch much more to the positive over the next few days. While current sentiment could be described as short-term cautious but longer term positive, many investors who were hesitant to get involved at current prices might change their mind. In addition longer term optimism will rise.

With that, let's enjoy the day, lighten up positions as the rally progresses and get prepared once the market takes a closer look at the situation in Europe and the global economic situation.

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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