Weekly Market Overview

Jul 132010

Fundamental Analysis

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MARKET COMMENTARY: JULY 5 – JULY 9

As we hoped last week, the market rebounded and the S&P is approaching the 1010 mark which should act as a resistance. I will be watching the market behavior around this mark aiming at putting some new shorts. (I have waited so far)
The macroeconomic picture is deteriorating and does not support the strong recovery theme:
1) US unemployment reveals wage deflation and slow job creation
2) The housing market fully relies on government support and shows signs of rolling-over
3) The manufacturing numbers show a peak of the inventory cycle
4) We have seen a recent pullback in import/export
5) Fiscal austerity has taken over stimulus
The next weeks will provide more details of the microeconomic picture, which is the rosy picture. So far, companies profits have been very robust, cash has accumulated on their balance-sheets they could renew capex spending. Overall consensus is an expectation for Q2 earnings of 27% year-on-year growth.

Last week was light in terms of US economic news and the main focus was the European stress tests and successful Spanish bond sales. Indeed, recent successful Spanish bond auctions and its Euro10billion syndicated deal have reduced dramatically the July refinancing risk. The stress test rules have not been published yet but we know that sovereign risk will be considered, but potentially only for the securities held in trading books. We know as well that results will be published for 91 banks; so they will include some of the weak regional banks. Results will be released on July 23rd.
Coming up is a “full-bodied” week for the US and China.
Tuesday: German ZEW sentiment survey / UK CPI
Wednesday: Euro area CPI and Industrial Production reports / US retail sales / FOMC minutes
Thursday: US Industrial production and PPI / Chinese economic data (GDP, CPI, Retail Sales and Industrial Production)
Friday: US Consumer confidence and US CPI

Finally, the pound so far has failed to break the 1.52 resistance level. It is not very positive as other risky assets were bid. I will continue to monitor it but would be worried for the pound if it goes back below its 50MA at around 1.47.

Posted by: http://virtrader.wordpress.com/

Jul 122010