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 7 agosto 2012

Market Comment - August 7

(Marco Bonelli) Don't underestimate the "show-me" character of this rally!

The latest rally is based on further QE initiatives but also on hopes for an economic turnaround based on a better than expected labor report from last Friday. While this kind of rally could certainly move on a few percent, mainly driven by disbelief and confusion on the part of scared investors, at one point, the anticipated event has to show. Either the market sees massive QE from the ECB and / or Fed (ideally open-ended bond purchases according to Boston Fed President Eric Rosengren - a non-voting FOMC member) or upcoming economic data really improve and point to the long awaited recovery in the second half and into 2013. Without that this rally is based on nothing else but hot air!

Having said that, market players didn't have the privilege of even thinking about an improving economy for a while, so it's unlikely this newfound optimism will be erased immediately; at least the next disappointing economic statistic will reinforce the certainty of QE coming soon as the better labor report surprisingly didn't reduce expectations at all. In this respect, the predominant rule "bad is good and worse is better" gets an even stronger footing, supported by stock prices moving higher instead of being stuck in a range as they were in July.

But here is a small problem: There is no certainty that central banks will do markets the favor and announce aggressive bond purchases in September. The Fed will "closely monitor incoming information" and the better July labor report might have already a few FOMC members thinking twice. Also without a striking reason, the Fed will probably be careful being too aggressive ahead of the upcoming election. In addition, the ECB already lined up a few conditions for implementing outright bond purchases beside the well-known divided opinions among officials whether any action like this is legally possible after all. Either way, the market might have to wait for any QE longer than currently anticipated.

On the macro-economic front, any judgment on the labor market (following better non-farm payrolls that might have benefited from higher than usual adjustments) may be possible after the August data and any evaluation of retail sales (following better than expected July same-store-sales) may only be possible after a clearer picture how this year's back-to-school season looks like.

In the meantime, the economy remains in a very slow growth environment, corporate earnings grew a mere 1.34% with flat revenues (where more than 60% of companies missed estimates on the top-line) and are expected to decline 1.5% in Q3 (-4.9% ex financials) with negative revenue growth, Europe continues to slide deeper into the recession, which indirectly but frequently sends a reminder that the crisis is far from over (Spanish PM Rajoy also suggested for the first time last week that, "depending on the circumstances", he would consider seeking a bailout from the EU rescue fund - something that might be inevitable) and the global economy also hasn't shown signs of stabilization. Admittedly this situation has been on investors' mind for quite some time - that's why better stock prices are also a welcome distraction and a psychological relief that everybody tries to hold onto as long as possible. The SPX just dipped above 1400, the Nasdaq Composite above 3000 (and the NDX above 2700), so there is no reason why the market shouldn't make an attempt to revisit and even break through the highs from March / April (the upper trend line of the trading channel that started beginning of June - 1402 in the SPX and 2721.75 in the NDX - also shouldn't pose as too big of a resistance).

It's a traders' rally based on very questionable hopes and the time-frame to "deliver" might be shorter than many market players think at the moment. Therefore some profit taking into further strength may make a lot of sense!

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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