MARKET COMMENTARY DECEMBER 13 – DECEMBER 17

This week was the last full week of trading for 2010 and the Street is cheering up for 2011. Most of the Analyst Houses are bullish on the stock market and commodities; I will look at their reports and will be happy to share a summary with you. The forecast exercise however might proves to be as difficult as for 2010. Indeed, who would have predicted such a roller-coaster ride: a high in April followed by European-driven worries in May and June, then double-dip concerns in July and August, followed by euphoria amidst QE2, mid-term elections in the US and more fiscal stimulus ?

This week was more of the same: positive statistics in he US and renewed concerns for Europe. Stock markets are up mildly:S&P +0.3%, Oil +1.1% at $88.8, Gold -0.90% at 1380, Treasury curve is steep with 10y rate at  3.33% despite a rate decrease at the end of the week. US Retail Sales for November came in stronger than expected at +0.8%. CPI was fairly tame at +0.1%. The message here is that inflation at the consumer level is still subdued despite inflation pressure beginning to rise in producer level and sustained high inflation in commodities. Philly Fed survey came out better than expected. US housing starts also posted a nice come-back in November with a 3.9% rebound. Basically, housing is stabilizing but not really improving.

On the European front, Moody’s made the headlines placing Spain credit rating on review for downgrade and downgrading Ireland from Aa2 to Baa1. The European Summit did not bring any major announcements. The only positive news, which is a sign of the European dichotomy, was the IFO index which rose to a record of 109.9, illustrating again the good health of German economy.

EUR/USD short is working well so far, although movements this week were probably exacerbated by light liquidity.

I wish you all a Merry Christmas. I am off for several weeks of sun in Indonesia and I will resume my commentaries when I am back in mid January.

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