Friday, 18 November 2011

ECB does what it must, but not with the right noises

Mike Lenhoff's market tactics - 18 November 2011

Unsettling as it is, the intraday volatility in equity markets is a distraction. The key now is earnings and specifically how expectations are likely to evolve over the coming months. Also, as the contagion spreads, and notably to France, the credit rating agencies have fixed their beady eyes on it. Fitch came out with the heads-up this week that ‘... unless the eurozone debt crisis is resolved in a timely and orderly manner, the broad outlook for the US banks will darken’.

As the chart shows, not only are CDS premiums for the European banks on the rise again but so are those for US banks and meanwhile Japan’s TOPIX index has been falling to new post-financial crisis lows. In fact leaving aside the depths to which the index plunged during the 2008 financial crisis, TOPIX is now hitting new post-asset bubble lows.

With the eurozone sovereign debt crisis so all-consuming, there is little else that gets a look in. For example, the better tone to October’s US economic data including this week’s jobless claims suggest better job growth ahead. Even the Philadelphia Fed’s survey, which came in below expectations, showed a big improvement in employee numbers over previous months. October’s economic news provides for not only a good start to the final quarter of the year but it also points to a pick-up in the economy’s momentum. More >

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