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

martedì 15 novembre 2011

Market Comment - November 15

(Marco Bonelli) Contagion? What? Why?

It's quite disturbing to see the discussion about contagion heating up just recently. And why do we discuss it anyway as Greece and Portugal is too small to have any impact on the European economy, right? And even if Italy and a few others don't show any growth, the rest of Europe remains relatively strong, right? And even if Europe falls into a recession, it's still 4000 miles away from the US and about 4500 miles away from China, so anything happening in Europe is probably sort of isolated and most likely contained, right? Welcome to global economics!


Also, is it possible that the downside of a constructed, technocratic government is political instability?

Greece took five days to even agree on a prime minister. Mario Monti in Italy will probably also take a few days to form a cabinet. Using simple mathematics, it's easy to calculate how long it will take to agree on any critical points when they can't even agree on the basic set-up of the cabinet in the middle of a crisis.

Anyway, the overall market seems less worried and - unless there are any interruptions out of Europe - can fully concentrate on numerous fundamentals and various trends:

Retail earnings and guidance may give some insight of how the holiday season may shape up. The discussion about massive promotions and the question who will open the doors first for Black Friday is already in full swing. So far JCP, LOW, URBN (all yesterday), WMT, SPLS and TJX reported mediocre to disappointing results, while HD, SKS and DKS surprised slightly on the upside.

Earnings from DELL (tonight), AMAT (tomorrow) and CRM (Thursday) will probably give some insight into the condition of the technology sector.

Finally, a lot of economic data from October and manufacturing sentiment data from November may provide a clearer view of which trend the economy is following. This morning October retail sales and the November Empire Manufacturing Index came in above expectations. Better than expected retail sales follow also stronger October same-store sales and at least suggests some improvement in Q4 compared to a somewhat softer Q3. Regarding the Empire manufacturing Index, it is interesting that the "New Order", "Inventories" and "Number of Employees" sub-components were down but probably most noteworthy is that 6-month expectation for capital expenditures and technology spending are sharply higher. Having said that, it is also important to remember that this is just a sentiment figure, which could easily change next week. Over the next few days, October Industrial Production and Housing Starts as well as the November Philadelphia Fed Index will be published.

A last word about market sentiment, which dramatically switched from negative to positive during the October rally: After some consolidation (similar to the market), most recently, sentiment appears to move again deeper into the positive camp, which is not particularly supportive for sharply higher prices. Acknowledgements of the resilience of the market, recommendations for a year-end rally or playing the "Dogs of the Dow" and strong statements in regard of improvements in the US economy, visible progress in solving the European debt crisis and a "soft-landing" in China all point towards talking things nice and painting a brighter picture of the future than realty suggests. The AAII Sentiment Index of individual investors that showed bullish sentiment rise to a 9-month high also mirrors that development.

Given better than expected economic reports, there may be a chance that the market will rebound from the opening lows. However, if concerns about Europe prevail, the highs from September for the Dow Jones at 11717 and the SPX at 1230.50 as well as the critical 2600 level in the Nasdaq Composite will be the first targets on the downside.

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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