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

venerdì 28 settembre 2012

Market Comment - September 28

(Marco Bonelli) In context of Spain's 2013 austerity budget, a derivative of Albert Einstein's famous definition of insanity could be (from a market point of view): Believing in a positive outcome over and over again, although the same plan and procedure already produced negative results multiple times!

It is nothing new that politicians are a class of their own (in a negative way) but it's almost unbelievable that the austerity plan the Spanish government presented yesterday gets taken seriously and cheered as "major step" and " concrete, ambitious and well-focused measures" that go "beyond EU recommendations". ...budget is based on unchanged economic forecasts (GDP expected to be down 0.5%, equal to this year).../...2013 tax revenues will exceed 2012 revenues.../...Spain plans 43 laws to bolster economy.../...Spain to tap pension reserve fund for Euro 3Bln for liabilities...and as the deputy prime ministers phrased it, "the budget is designed to end the crisis". Basic macro-economic knowledge is enough to figure out that this budget won't work and will need to get adjusted multiple times and if there is any doubt how the implementation of an austerity plan, designed on the drawing boards of politicians who desperately fight to stay in power, looks like, just take a look at Greece! As an add-on to the farce, the "stress test" results that just got presented show that quite a few Spanish banks are healthy and that the capital shortfall is a moderate Euro 59.3Bln.

Anyway, back to the point, the market believes in a positive outcome and deals with any disappointing "updates" later. The positive perception of the Spanish budget came on top of a more optimistic outlook for China's economy and better than expected "forward-looking" weekly jobless claims, which led to quite substantial short-covering as a result of an overall cautious and negative investor sentiment for the near-term market direction. Sectors like technology, energy, financials and consumer discretionary were among the best performers and still have plenty of room to the upside from a technical point of view.

While the market shrugged of a very disappointing report on Durable Goods Orders for August yesterday, the unexpectedly weak Chicago Purchasing Manager Index for September from this morning faces little news to offset the disappointment and the market more or less gives up all short-covering gains from yesterday.

A possible short-term rally over the next few weeks could be a contrarian call, based on increasingly negative sentiment (short-term speaking) and the perception that the macro-economic situation in the U.S. but also globally is seen as stable since investors seem to have accepted the slow-growth environment in the U.S., a mild recession in Europe and deteriorating growth in emerging markets and China as a given. So after two very negative economic data, is it already time to change course? No!

As disappointing as the two mentioned statistics were, the majority of data after the QE3 announcement was slightly better than expected, especially various local Fed indexes showed some recovery from weak levels. As much as a dip below 50 raises a red flag, the Chicago PMI was the only local index that firmly held in expansion territory so far. It could be that this index is simply catching up what other territories already displayed and it also remains to be seen how the national PMI looks like next week, as the historically close correlation of both indexes is no longer that close. Next week will also provide a new look at the labor market, in other words, it is too early to declare a new deterioration of economic activity that would change the current view. However, these disappointing data almost instantly have a negative effect on sentiment that further slides into the short-term bearish category and confirms the consensus view.

Beside upcoming economic data, the Q3 earnings season could also provide an initial positive trigger for the market. Earnings "growth" is expected at -2.0% (-5.2% ex financials) and Q4 earnings estimates reluctantly but steadily come down. After sharp revisions to the downside for Q3 earnings, a few reported results will likely "beat" expectations, others will be seen as "could have been worse" / "not as bad as feared" - something that could give stocks another (short-term) boost.

With that, traders may continue to buy the dips as long as the SPX stays above 1422, the high from March/April and break-out level to multi-year highs and investors may have a chance to reduce positions 5 to 10% higher from current levels!

Trade well and have a great weekend!

(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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