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 26 gennaio 2012

Market Comment - January 26

(Marco Bonelli) "Modest" or "moderate", this is the question! So why keep interest rates around zero for only 3 years, why not pledge to hold the current level for a decade or longer...?

Obviously the FOMC statement and Ben Bernanke's press conference embracing an even more dovish stance than expected, was the big surprise that gave the market just another boost. The "end of 2014"-statement apparently caught all the attention but the three other little changes in the statement are a bit suspicious. Business fixed investment now "has slowed" (after "appeared to be increasing less rapidly"), economic growth over the coming quarters is expected to be "modest" (after "...a moderate pace of economic growth...") and inflation now "has been subdued" (after "...has moderated..."). This assessment shows that the Fed is obviously more cautious on the economy, despite overall better than expected economic numbers and the outlook in terms of inflation is even more favorable. Putting aside the question how much sense it makes to commit to an easy monetary policy for the next almost 36 months, another question comes up: Did the 2014 statement come up first and the FOMC was looking for arguments (i.e. describe the economic outlook less positive) to justify that unusually long timeframe or did the FOMC gather more (negative) information about the economy during the past six weeks and came to the conclusion that an even longer accommodative stance is necessary?

As usual, it's not worth asking too many questions but just take it as it is and fact is that investors see the QE3 door wide open! Ben Bernanke's answers to some questions in the press-conference, saying that "the Fed is prepared for future stimulus if recovery falters" or "...prepared to implement further stimulus if unemployment remains too high" clearly emphasize that.

Economy-sensitive sectors should undoubtedly benefit (while the profit potential in the financial sector gets questioned as interest margins may stay lower for longer). Another boost will come from better than expected December Durable Goods Orders and a strong Q4 report from CAT that continues to keep hopes for a more sustainable economic recovery alive. Interestingly, the Dow Jones Transportation Index that showed some signs of slowing in recent days, outperformed strongly on back of a rebound in railroads and a better airline sector. Furthermore, although earning in the industrial sector were mixed and often delivered a lower than expected outlook, strong reports from blue-chip companies like CAT this morning or CBE yesterday may easily pose as justification for the already strong performance of the sector.

In terms of sentiment, there seems to be a significant disconnect between the interpretation of some market indicators and the actual sentiment. Many commentators point to too much complacency in the market (for instance the S&P put/ call ratio at lowest level since May or the VIX stubbornly trading below 20), but looking and listening closer, it shows that a lot of market participants remain cautious and hesitant, in other words, they are only partly participating in the current rally or not participating at all. 1350/ 1360 in the SPX, the highs from last year, will be interesting as many investors probably don't expect the market to push through these levels and if it does, the performance pressure will become a big issue.

Staying invested in technology (playing the best earnings picture so far!), industrials (riding the economic outlook and the CAT wave!) and financials (still one of the biggest contrarian plays!) for another few percent upside still appears to be the right strategy. Nevertheless, let's keep an eye on the Greek debt negotiations, which resumed today and let's watch the bond-market that showed strong signs of life yesterday after drifting for five trading days (which probably benefitted stocks as well).

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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