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 6 agosto 2012

Market Comment - August 6

(Marco Bonelli) What happened?

After the market saw some life following the celebrated "break-through" European Summit in June, it was reinforced hopes for any kind of QE action from global central banks that kept the market floating more recently. However, fact is that the market overall, its behavior, all major averages and investors' sentiment were pretty much locked in a range during July. At one point the market needed to break out of this "range" and apparently a better labor report, supported by underlying complacency regarding QE, posed as the right reason to do so!

Immediately the obvious bullish statements emerge and market players get confronted with questions whether global economic growth is turning to the upside, if the consumer is recovering, whether overall demand has bottomed, if Q2 earnings represented to "trough" of the slowdown in growth, if the Dollar has seen its peak and how far stocks and commodities will rally! A rise from 52.1 to 52.6 in the ISM Non-Manufacturing Index for July (business activity and new orders were perceived better, employment and import orders worse) also kept hopes alive that the service sector might accelerate from its slow growth environment. Within the next week or two, market sentiment surveys will probably reflect a surge in optimism which will be more a reaction of performance pressure than real conviction.

It is very doubtful that the economy suddenly started a process of recovery given the long deterioration of almost every growth trend. It's this self-feeding process that still gets ignored and seemingly always has been ignored but that still leaves the hope (or can we call it certainty after a re-interpretation of Mario Draghi's press conference last Thursday?) for a QE operation by the ECB and possibly by  the Fed in September. Since QE entered the elite group of most popular financial words in November 2008 (introduction of QE1 by the Fed), I don't think the market ever reacted that strong in anticipation of a possible announcement than it does it the moment so it's hard to imagine how far any kind of rally may go without the factional announcement. Could a rally based on an expected QE announcement carry the market as far as a real announcement? And how big could the "hope"-premium get this time that tries to discount a hoped for economic recovery based on a hoped for monetary policy stimulus?

Probably it's as easy as it looks and we shouldn't waste any minute analyzing the developments deeper than this sentence: QE, coming up or already in place, no matter if it gets operated by the ECB or the Fed means hundreds of Billions of Dollars getting pumped into the financial system and part of it certainly finds its way into the stock-market!

The market is driven by sentiment, liquidity and fundamentals. Sentiment and liquidity alone can carry the market a long way without looking at fundamentals but fundamentals is the component that eventually determines the level of stock prices! Currently we have sentiment that is, if not negative, at least highly skeptical and therefore "supportive" of a possible continuation of the rally. Liquidity in terms of money available to be invested is there but sitting on the sidelines and in terms of money printed by central banks anticipated but not there, yet; still overall also "supportive" for the market. Fundamentals continued to decline as of recently and there were only few signs of stabilization or real improvement. These are still a few uncertain components but factor hope and the behavior of the market in the past week doesn't really support a recommendation to bet against it. So far it's clearly a trader's rally but the SPX moving past 1400 and the breaking the April 2 highs of 1422.38 (or the Nasdaq Composite moving past 3000 and breaking the March 27 highs of 3134.17) will force many players into it. The faster this happens the more vulnerable the market becomes towards any unforeseen events out of the catalogue of uncertainties but for the moment let's enjoy the rally - as unreal as it seems (but the market has never been about reality in the first place)!

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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