MARKET COMMENTARY DECEMBER 6 – DECEMBER 10
December 12, 2010 by virtrader
This week, equity markets were up (S&P +1.3%) on the back of a dovish interview of Ben Bernanke on CNBC and the expectations of larger than expected tax cuts.
However, the big story of the week was the surge in bond yields, the 10-year note widening by 21bps to 3.32%. The current message from the US is that it currently focuses on reviving economy and has no intention to getting its fiscal house in order. The results is reevaluated inflation expectations and higher growth forecasts. Indeed, after Goldman Sachs revised up its growth forecast last week, many economists followed this week, including Pimco. There are reasons to be optimistic but the financial system remains fragile and will need constant support from the authorities for several years. When you add Financials and Government Debt, ratios over GDP are respectively: EU-12 at 164%, US at 191%, UK at 213% and PIIGS at 214%. Therefore I think currently volatility is cheap, the Vix trading at 18% as I expect 2011 to remain volatile with regular sovereign crisis and authorities interventions.
In China where inflation is the major focus though. This week economic data showed industrial output growing at 13.3% in November and inflation at 5.1%. On Friday, the central bank announced a 50bps increase in reserve ratios and there are rumours about a rate hike this week-end.
The euro fell against the greenback after Ireland’s credit rating was downgraded and the region’s political leaders differed about how to contain the debt crisis. I am still short Euro with a target at 1.2650. This is based on the technical picture as well as the fundamental view of a double speed Europe dragged by its weakest links and a US economy with increasing momentum.
This week is bristling with economic news with the PPI and retail sales the first market movers out on Tuesday morning. The Fed’s FOMC statement later in the day will be parsed for news on QE2 and any upgrades on the economy. Wednesday includes updates on the CPI and industrial production. The final big mover of the week is housing starts posted on Thursday. In Europe, PMIs and the IFO Survey in Germany will be the highlight to confirm the growth momentum in core Europe.
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MARKET COMMENTARY DECEMBER 6 – DECEMBER 10
December 12, 2010 by virtrader
This week, equity markets were up (S&P +1.3%) on the back of a dovish interview of Ben Bernanke on CNBC and the expectations of larger than expected tax cuts.
However, the big story of the week was the surge in bond yields, the 10-year note widening by 21bps to 3.32%. The current message from the US is that it currently focuses on reviving economy and has no intention to getting its fiscal house in order. The results is reevaluated inflation expectations and higher growth forecasts. Indeed, after Goldman Sachs revised up its growth forecast last week, many economists followed this week, including Pimco. There are reasons to be optimistic but the financial system remains fragile and will need constant support from the authorities for several years. When you add Financials and Government Debt, ratios over GDP are respectively: EU-12 at 164%, US at 191%, UK at 213% and PIIGS at 214%. Therefore I think currently volatility is cheap, the Vix trading at 18% as I expect 2011 to remain volatile with regular sovereign crisis and authorities interventions.
In China where inflation is the major focus though. This week economic data showed industrial output growing at 13.3% in November and inflation at 5.1%. On Friday, the central bank announced a 50bps increase in reserve ratios and there are rumours about a rate hike this week-end.
The euro fell against the greenback after Ireland’s credit rating was downgraded and the region’s political leaders differed about how to contain the debt crisis. I am still short Euro with a target at 1.2650. This is based on the technical picture as well as the fundamental view of a double speed Europe dragged by its weakest links and a US economy with increasing momentum.
This week is bristling with economic news with the PPI and retail sales the first market movers out on Tuesday morning. The Fed’s FOMC statement later in the day will be parsed for news on QE2 and any upgrades on the economy. Wednesday includes updates on the CPI and industrial production. The final big mover of the week is housing starts posted on Thursday. In Europe, PMIs and the IFO Survey in Germany will be the highlight to confirm the growth momentum in core Europe.
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Posted in MARKET COMMENTARY | Tagged Ben Bernanke, China, Fed, inflation, S&P, Sovereign risk, Vix | Leave a Comment
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