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 30 aprile 2012

Market Comment - April 30

(Marco Bonelli) Are trends sustainable these days?

In Q1, consumer spending and signs of a recovery in the housing market breathed some life into the broad economic recovery scenario.

Recent numbers for personal consumption as part of Friday's GDP report and the Michigan Consumer Confidence report for April (this morning's Personal Spending growth of only 0.3% for March seems more like a payback to February's strong 0.9% growth) confirmed this trend, which probably contributed to the recent strength in the market and might still support a continuation of the current rebound.

Q1 earnings beat sharply lowered expectations by a big margin and earlier in the reporting season, this number was even above 80%. Although Q2 expectations have started to already come down due to an unusual large number of companies warning for the current period, bottom-up estimates already show 17.5% earnings growth in Q4 this year and next year, overall earnings growth is expected to move back up to double-digit levels (following an official 9.2% for this year), resuming the trend the market saw over the last three years. New-found optimism about the earnings power of US corporations has been one of the main drivers of the recent bounce.

Many market participants tend to treat trends like this as isolated developments and eagerly extrapolate current growth to the next quarters (quite often we hear the description of "decoupling", which in many cases is more wishful thinking than part of reality), resulting in absolute statements like "...consumption and construction will lift economic growth to the next stage...", "...earnings are strong and corporations are healthy...", "...the German economy is like a rock in a rough sea...". Other commentators and players question the sustainability of any trend -negative and positive- and often come up with extreme forecasts every time one data point contradicts the current trend. Not surprisingly, questions about the sustainability of consumer spending and earnings growth came up, which keeps many investors on the side-line.

Short-term speaking this cautiousness could easily create opportunities and last week's rally may well see an extension. At the same time, doubts about the sustainability are probably valid; however, what's often missing in the discussion and argumentation is the complexity of the (global) economic system and the interconnection of trends.

§  Weaker economic growth, less new payroll creation, higher jobless claims, lower income etc. will reflect in consumer sentiment, consumer behavior and spending.

§  Weaker economic growth, more and more countries falling back into a recession, weak revenues, rising inventories etc. will have an effect on corporate sentiment and also earnings (recent regional PMI numbers for April and the high percentage of profit and revenue warnings for Q2 are a perfect example).

§  Weaker economic growth in China does show in lower German exports to that region and consequently in German economic growth in general.

§  Weaker economic growth in Europe (the GDP of the European Union was $17.58 Trillion in 2011, making it the largest economy in the world) does show in lower exports to that region and affects the global economy.

Anyway, these are just a few examples and some thoughts that might not be relevant today and tomorrow but maybe next week or in two weeks from now. In the meantime, "only" 71.2% of the 299 S&P 500 companies that reported, beat expectations but Q1 earnings growth is still a healthy 8.26%, investors remain cautious, charts pictures improved considerably and another wave of short-covering could push many major averages to moderate new highs. Having said that, any move like this will probably turn out to be short-lived once market participants see more evidence that recent positive trends (and the resulting optimistic outlook) are not sustainable and the recent trend of deteriorating global economic growth turns out to be more sustainable than expected.

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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