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 7 settembre 2012

Market Comment - September 7

(Marco Bonelli) The definition of “Euphoria” (according to Wikipedia, The Free Encyclopedia):

Euphoria, from Ancient Greek εὐφορία, from εὖ eu, "well", and φέρω pherō, "to bear" is medically recognized as a mental and emotional condition in which a person experiences intense feelings of well-being, elation, happiness, excitement, and joy.
Euphoria is generally considered to be an exaggerated physical and psychological state, sometimes induced by the use of psychoactive drugs and not typically achieved during the normal course of human experience.


§  First of all, you cannot ignore the market breakout to a new 4 ½-year high in the SPX and a new 11-year high in the NDX that points to the possibility of a continuation of this trading-focused summer rally. You could even add the recent encouraging retail spending data, the fact that the broad service sector is not falling off a cliff (according to the ISM Non-Manufacturing Composite at 53.7 in August) and the gradually improving housing sector to back up the stock market development with fundamentals.

§  Second, the recently slightly crowded camp of all those (including myself) who expected a negative market reaction following disappointing news headlines from the ECB and Fed might think about switching camps again; so yesterday’s market reaction certainly confirms the bulls and also has the potential of moving overall investor sentiment back towards positive.

§  Third, as powerful as yesterday’s move was, the rally may soon run out of steam once investors rethink the latest monetary policy announcement and refocus on the broader fundamental picture!

So the ECB finally announced an aggressive asset purchase program that is totally different than the world has ever seen. The genius of this tool is that although the ECB announced unlimited bond purchases, it won’t buy anything! The market simply hopes that the situation in Europe further deteriorates, hopes that one or two (the more the better) countries officially apply for an IMF supervised bail-out, hopes that by then, the EFSF and ESM vehicles are fully operable, hopes that the other European members agree on and approve a bail-out package and then expects the ECB to step in and buy bonds like there is no tomorrow. Until then the market won’t see any of the hope-for outright liquidity injection! The conditionality and the not-defined sterilization of this “Outright Monetary Transaction” may not only turn out to be a little hair in the soup but a whole hair-ball!

Unlike other monetary policy related rallies that get fueled by massive additional liquidity tagged to hopes for real fundamental improvement as a result, the current rally is solely based on euphoria, inflated hopes and a little bit of irrational exuberance!

Despite some mixed readings in global macro data (recent manufacturing numbers for July out of Europe were mostly better than expected), there are no clear signs of stabilization; the  latest data out of China even show further deterioration, Europe will remain in a recession and the global manufacturing sector remains in contraction territory. FDX rang in the Q3 pre-announcement season a couple of days ago and INTC followed through with a bang this morning, cutting guidance for Q3 across the board and withdrawing guidance for the year. Q3 earnings and Q4 guidance might be the next real test for investors to evaluate whether fundamentals stabilize and when global economic growth may start a recovery. So far the trend in earnings growth points down and estimates for Q4 have to get sharply adjusted to the downside!

Having said that, the March/April high in the SPX at 1422.38 and the NDX at 2794 are the crucial levels that got broken yesterday. A confirmation of this break-out is needed to move on, so the market shouldn’t give up half of yesterday’s gains by the end of today but boiling expectations for a QE3 announcement at next week’s FOMC meeting following another dismal jobs-report might do the job to keep the euphoria alive, that trading-oriented market participants may use to participate!

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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