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 5 luglio 2012

Market Comment - July 5

(Marco Bonelli) ...already priced in...

During the last few trading days many market participants emphasized that a lot or all the bad news is already priced into the market, making a point that the steep rally since the surprising outcome from the European Summit is justified, based on negative sentiment and more confidence going forward.

Turning the coin, is it fair to argue that a lot of the anticipated good news (i.e. European crisis solved (once again!), more monetary accommodation by central banks, including QE3) is also priced into the 3.3% rally in the SPX and 4.3% rally in the NDX since Friday if the bad news is already priced in?

The monetary easing measures from BOE and ECB have been widely anticipated, although the PBOC's rate-cut this morning was more unexpected. Nevertheless, at any other day, wouldn't stock markets around the world go through the roof if three major central banks provide more stimuli? So how much of monetary easing news is already priced in? Wouldn't the same markets shoot even higher if weekly jobless claims deliver the first positive surprise in almost five months and if ADP Employment Change data beat expectations after disappointing for two months? So how much brighter outlook is already priced in?

Mario Draghi's statement, that the "ECB sees weakening of growth in the whole euro area including countries not previously experiencing such", certainly takes some steam out of the excitement and mostly disappointing June retail same-store sales (on back of weaker personal consumption in Q1, negative retail sales growth in April and May and falling consumer confidence) also don't provide a lot of support. Furthermore, how does the Euro retracing most of its post-European Summit gains and bond yields almost regaining their levels from before the Summit go together with a brighter outlook and the European crisis solved?

Given that most of the optimism and anticipated brighter outlook is based on further stimulus and liquidity injections by central banks, the negative reaction to the better than expected labor data probably mirrors some disappointment from all those who expected a QE3 announcement at the next FOMC meeting in less than four weeks as the Fed might not see immediate urgency to do so.

How does sentiment look like anyway? In the last few days, sentiment was mostly portrayed as cautious, hesitant and defensive! Media outlets also pointed out that market strategist's asset allocation in stocks is at the lowest level in years. Really? How does this defensive asset allocation work with mostly bullish year-end targets for the SPX? And how representative is this defensive asset allocation of client's portfolios? On the contrary, the Hulbert Stock Newsletter Sentiment Index (covering weekly asset-allocation recommendations by market newsletters) jumped by 24% points over last weekend and now stands higher than levels recorded on May 1! Despite many cautious and bearish calls, bullish calls re-emerged, highlighting more confidence and the famous negative sentiment. So bottom-line, overall sentiment is probably not as negative as described and every better trading day will reinforce a rapid switch into the bullish camp, which could backfire badly if the trend of deteriorating fundamentals continues (in this context the ISM Non-Manufacturing Index for June dropped below levels from fall last year and recorded the lowest reading since January 2010 - a rather worrisome development given that the service sector (compared to the industrial sector) is less exposed to weakness overseas, particularly in Europe and China).

Right now, 1370.50 (May 2011 high), 1363.50 (June 2012 high) and the 100day MA at 1360 remain closely watched marks for the SPX.
The market might see more volatility later as market players try to position themselves for the payroll data tomorrow; after that the focus will switch to the Q2 earnings season that doesn't promise a lot of good news to support the newfound confidence and the brighter outlook!

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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