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Equities

General view: Looking at the trading pattern there are clear signs of investor appetite for equities, but I apologise, it’s too early to enter the market. Two underlying forces are dominant, and not necessarily making life easier for investors in judging the market. The swings in the stock prices for financial institutions are abnormal. Therefore they dominate the large equity indices so much that it looks like an overall trend reversal when the banking sector rebounds. It’s just a rebound, as the pressure on banks will continue. The other force (and also bearish) is the global slowdown in growth. It gives a more sliding, but very fundamental, bearish pressure in a broad range of segments within industrials, transportation, service etc. The latter force continues, and as mentioned I believe in more hits within the banking sector. The result will be even lower stock prices than we have now. In US, the banks will take more write downs on private households and small industries, in Europe real estate exposure will hit banks in Spain, UK, Ireland and partly France and Scandinavia. Chinese banks might have an unhealthy lending exposure to the domestic housing as well. That’s why only I see the latest upturn in global bank stocks as a rebound. The gold-digger should hope that the balance sheets at Japanese banks are in better shape this time (don’t rush in yet).

USA: After last weeks fairly ok Q2 earning reports from US companies I think there will be more attention on macro economic news this week. The remaining US Q2 company reports might support shares but, I watch the Q2 GDP on Thursday 31st July (expected +2,0%) and the US labour market data on Friday (expected -73k and unemployment rate at 5,6%). The private households most likely have done a good job by spending more than expected during Q2, but the drop will come in Q3 and Q4 confirming the long sliding downturn. Oil is the joker so I keep a close eye on that one.

Targets: Dow Jones S & P 500 Nasdaq 225

Foreign Exchange

EUR/USD (1,5600): Mr. John Lipsky, the IMF’s first deputy Managing Director, put everything very right in a speech on 22nd July. As he correctly said, that the Euro is overvalued due to all the currencies that are pegged to the Dollar have depreciated together with the American economy, leaving Euro with a relative strength. Mr. Lipsky also said that the greenback was very close to it’s med term value, which is something new – a good reason why it can drop a further 10% from here,  but what will be the trigger ?  The US housing market is very much in focus. We need to find the right price for assets before we have an idea about how bad the situation is for private US households, and the economy in general. Another support package for troubled house owners in USA (about 400.000) was approved by the Senate on last Saturday, but again, it can’t save the US housing market, just avoid the total meltdown. Despite more bad news out of the Euro Zone, then is the steepness in the US downturn the reason why the greenback will drop further. The biggest event this week is the US unemployment data Friday 1st August (non-farm payroll expected -73.000 and the unemployment rate at 5,6%). I judge the market sentiment right now as USD bearish, meaning a bad figure will send Dollar lower but a good number won’t help much. The interesting flows currently are from official like names. A few weeks ago some Asian central banks intervened in their own currencies by selling Dollar. Now some sovereign owned funds sells EUR/USD in the 1,5750/1,5950 area – to buy US assets I would guess, but I believe this USD appetite will be filled. In the FX option market there is growing demand for EUR calls / USD puts strike 1,6000.  The next EUR/USD target is 1,6100, the following target is 1,7335.  

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