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 26 giugno 2012

Market Comment - June 26

(Marco Bonelli) Is all the bad news really in the prices?

Beside the "cheap valuation" argument, the proclamation that all or most of the bad news is known and already discounted in current prices dominates most recent bullish commentaries. While some minor positive headlines about any kind of "progress" in constructing a master plan in Europe or a better than expected economic number could trigger a quick short-covering rally based on negative sentiment and the fact that the current problems around the world have been discussed in length for a while, it is probably a risky call to say that all the bad news is already in the prices!


Bad news can only be fully discounted if investors know the full extent of the event and as long as the event (European crisis, global economic slowdown, earnings recession etc.) is a floating trend, nobody is able to capture the full extent! Will the European crisis intensify? How much will the European economy deteriorate? How much will the global economy deteriorate? How weak is global demand? Will minus 1.1% earnings growth, as expected for Q2 be the bottom? Will the Dollar rise more against major and emerging market currencies and cut even further into the earnings for international companies? ...are just a few open questions.
Beside that, does a 5 to 10% pullback from the highs of a 30 to 50% rally that anticipated an acceleration of the economic recovery, the end of the European crisis and a pick-up in earnings growth in the second half of the year really discount a deceleration of economic growth, globally, an intensifying European crisis and the risk of an earnings recession?

The good part is that the possibility of longer than expected global economic weakness and the risk of a disappointing earnings outlook for the remainder of the year gets more attention and gets started discussed more but again, until a few weeks ago, the majority of market participants still expected a better 2H and further acceleration of growth around the world in 2013 and nobody knows were and when the current weakness ends!

This leads directly to commodities that try to stabilize around 8-month lows and trade close to the lows from 2010. The weakness in energy and industrial related commodities is a direct reflection of deteriorating demand trends and economic weakness in general. As nobody knows how long the weakness in demand lasts and how global economic growth develops, it's hard to call any kind of bottom.
While lower commodity prices certainly contribute positively to the inflation outlook and help lower costs for corporations and households, this effect probably gets more than offset by the economic weakness and deteriorating demand right now (...by the way, for the consumer, a trip to the supermarket with continued higher grocery and food prices across the board (compared to 6 or 12 months ago) probably more than offsets the few Dollars saved at the gas pump).

In the meantime the major averages came closer to their 200day MA (the S&P 400 and Value Line Index already trade below while the Russell 2000 and Dow Jones Transportation Index just try to bounce off that line this morning) and financials joined energy, industrials and technology as the worst performing sectors. Window-dressing and repositioning for the end of the month and the quarter will dominate this week's activity but makes it highly unpredictable.

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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