Get Markets Right

Below you will find my weekly view on the very challenging financial markets.

Read more about all the interesting happenings in the financial markets in the 4 entries here below. I hope you find it interesting to read my private view about the consequences for the stock markets, currencies, China and what to expect from the central banks.

Currency markets – Fundamentals starts to work……

EUR/USD (1,3650): Most attention this week will be on Fed Tuesday but not in focus as the last couple of times. A rate cut of 50 basis points is priced in already with a possibility of 75 basis points, but regardless of the cut it of course doesn’t draw the same attention as this will be the last or the second last rate cut. So it might be fair that fundamentals gain in importance as the markets are always searching for new clues.

EUR/USD broke 1,3000 three trading days later than expected in the Weekly from 1^st December. The move was partly linked to developments in the stock markets but fundamentals all of a sudden did…

Equities – Riding the rescue wave but don’t flip over on the surfboard – it hurts……..

Nikkei 225 (8.665)  Topix (847)  Dax (4.729)  FTSE 100 (4.226) Dow Jones (8.630)  S&P 500 (880) Nasdaq Comp (1.540)  

S&P 500 is trading at an expected P/E of around 10, based on the latest average of economists forecasting the S&P 500 earning next year to be $91.

A P/E at 10 is not aggressive either way given the very difficult macro-and micro economic conditions against historical higher P/E values. So will it go up or down from here?

As mentioned a couple of times before it will be a bet about, in particular, when the investor thinks that the recession is over. Right now there is…

China – More wants to be long but the reality is nasty.

Hang Seng (15.046)  Shanghai B (114)  USD/CNY (6,8440)

Several times I have mentioned that Far East, and maybe even China as the very first, will be the region/country to rebound. Due to higher savings among many households in Far East, stronger balance sheets at many financial institutions in the region compared to the world, flexible labour market, low wages and very important a strong political will to get growth back on track as soon as possible.

In addition, the Chinese Communist Party tries to create a new domestic demand culture, and they are really putting effort into this.

Investors smell the corporate profit from this and the appetite for Chinese mainland…

Central bank rates – Cutting as much as possible, and then what?

US Federal Reserve Bank: Now Fed is at 1,00% and Tuesday evening they are at 0,50%, maybe even 0,25% (I go for 0,50%). Going below 0,50% is very difficult as money market funds will create a negative return. Despite the money market funds a zero rate is in the cards. Trying to repair a credit bubble that exploded by getting credit rolling.

Bank of England: They will drive it as low as possible – to American and Japanese levels. 

European Central Bank: Very quickly taken down to 2,50% so now will Mr. Weber needs some time to digest. Further cuts are already priced in and also likely, but slowly towards 1,50%…

Currency markets – Mr. Trichet will cut but EUR is still a high yielder among G7.

EUR/USD (1,2640): This week the full attention is on ECB on Thursday and the US labour market data Friday. My best guess is that the market expects a 75 basis points rate cut from ECB on Thursday. I think it’s a fair guess where 100 basis points is more likely than 50 basis points if they consider anything else than 75 basis points. The comments will, as usual, be very interesting but hardly anything but sluggish. This might be expected but I think it will move the market anyway – lower within the current range. Mid term it will have an effect that the EUR…