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 9 gennaio 2012

Market Comment - January 9

(Marco Bonelli) How about the muted reaction after very favorable labor data last week was a result of significant concerns regarding upcoming earnings?

The market reaction during the last two trading days got discussed in length, market commentators were scratching their heads and arguments like "QE3 is now off the table" were fluctuating frequently. Others expressed concern ahead of another round of major events in Europe with the first "Merkosy" Summit today that kicked off the busy upcoming meeting schedule.

The more likely blame should go to uncertainty ahead of the Q4 earnings reporting season, that gets kicked off today when AA reports its Q4 results after the close, all after pre-announcing a major charge last week due to a 12% cut of its global smelting capacities. Next to the AA headline, investors got also presented with profit-warnings from the retail, technology and healthcare sector that lead to another round of last-minute earnings revisions to the downside.

Over the last three months, Q4 EPS growth for the S&P500 was revised down from 11.9% (10.9% ex financials) to 6% (6.4% ex financials) and Q1 this year is expected to grow a mere 4% (4.2%), a sharp contrast to earnings growth in the mid- to high teens investors got used to over the last three years. Almost every week, research analysts slashed estimates following weak company guidance, weak economic outlooks or profit warnings that started beginning of December (until now, a total of 62 companies preannounced positively, 181 warned (11 and 48, respectively for the S&P500 - this compares to 59 and 174 (11, 47 for the S&P500) at the same time last quarter). As economic activity in the United States turned out to be better than expected and following the typical psychological game of under-promising and over-delivering, there is a very good chance that actual Q4 earnings will beat current sharply reduced estimates! And by the way, "right-sizing" its business should only be a positive for AA going forward!

Although the close SPX - Euro correlation apparently ended in the middle of December when the differences in economic outlook and related central bank policies became more and more apparent, a strong Dollar and the resulting weakness at least for some commodities also weighs on the stock-market when basic materials and energy are the worst performing sectors. Nevertheless the CRB tries to defend its levels slightly above its 8-month downtrend (the index broke that trend-line to the upside on January 3 but fell back to the breakout level since then). Regarding the US Dollar, the DXY Index still faces the highs from November 30, 2010 and January 10, 2011 at 81.44 and 81.31, respectively. As the index advanced from 75 to 81 in a bit more than two months, some consolidation could be possible but any drastic moves aside, the currency trades should take a back-seat to the upcoming earning headlines.

Although bullish sentiment among individual investors jumped to a new 9-month high (according to the weekly AAII Survey, that by the way catches sentiment looking out 6 months), short-term sentiment among most market participants continues to appear very cautious and hesitant, which bodes well for a contrarian call once the market gets confronted with more positive headlines. Therefore going long into the earnings season and accumulating positions into any weakness could turn out to be the right strategy over the next weeks!

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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