Weekly Reports | Jun 18 2010
By Rudi Filapek-Vandyck
To put it in the words of one market commentator: “It appears the major derisking is over (for now). Volume has contracted as investors have squared positions to a comfortable level. Risk spreads have stabilized and in some cases, modestly contracted. The Vix continues to work its way lower and the S&P500 continues to consolidate around the 1100 level.” (Mike O'Rourke at BTIG)
But as soon as someone is trying to take a glass half-full approach, a warning comes instantly flying from around the corner. Westpac chief economist Bill Evans, just back from a tour through Europe, reports clients, investors and central bankers in Europe remain divided and worried about what might and what is likely to happen with the likes of Italy, Spain and Portugal.
Among the observations brought back by Evans, is a suggestion by an insider (“one contact”) that the European Central Bank has been buying short term government paper in recent Spanish bond issues. The apparent success of these placements has effectively supported this month's rally in risk assets.
This “insight” just goes to show it can be dangerous to become too confident about what lies ahead for equity markets, especially since economic data from the US have been disappointing this week. And even though more bullish commentators describe the fact the leading indicator managed to rise by 0.4% amidst a strong share market sell-off as “impressive”; the gain was still below market expectations regardless.
One only has to observe trading activity across global equity markets this past week to see that investors are clearly back in taking a glass half-full approach though, and it is likely to require some truly negative events to take away market momentum.
Tonight brings us quadruple witching hour in the US and in the run-up markets in Asia are prepared to stick to a continuation of the mildly positive mood.
Next week the focus will shift to the FOMC meeting. There won't be any change to the Fed Funds rate, but investors will be closely watching any possible signs and extra-insights. Given recent hints from the Fed that interest rates in the US might stay at present low levels for a much longer time than futures markets and economists are currently willing to contemplate, the accompanying Fed statement might bring some changes in overall market perceptions.
It is not inconceivable that volumes and overall movements will remain contained until some clarity will be provided by the Fed on Wednesday.
Other US events to pay attention to next week are, on Tuesday, data on existing home sales plus the Richmond Fed manufacturing survey. New home sales data are issued on Wednesday, the same day as the latest interest rate decision (no change) will be made public by the Federal Reserve. Data on durable goods orders are scheduled for release on Thursday with GDP (economic growth) and consumer sentiment on Friday.
There are various interesting data in the UK and in New Zealand, where the recent decision by the central bank to raise official interest rates will be closely scrutinised by the market in the light of further data about the apparent strength of the NZ economy.
In Australia, the calendar for next week is rather light, with data on imports and new car sales due for release on Monday together with the Commonwealth Bank business sales index. On Tuesday ABARE issues its latest commodity forecasts and then there is the release of Q2 WBC–ACCI Survey of Industrial Trends on Thursday, followed by the financial accounts on Friday.
More attention might go out to what's happening on football fields across South Africa than to the economic calendar next week. Apart from Wednesday, of course.
For a more comprehensive preview of next week's events, please refer to "The Monday Report", published each Monday morning. For all economic data release dates, ex-div dates and times and other relevant information, please refer to the FNArena Calendar.
