Monday Markets 30 January 2012

This week is very important for the market, as we have reached some challenging technical levels on many asset classes, and there will be a lot of important news and data flowing.

The issue of Greek debt restructuring remains a problem, as it is not resolved and the latest (17th) Euro Crisis Summit is convening. Greece needs an agreement to refinance before early March. To get that agreement, it needs to make concessions to Europe (such as on privatisation), but it is politically impossible for Greece to make further concessions until it receives something back (debt restructuring). The pressure will remain on the debt negotiations as a result. However, it is perhaps more important that this lack of agreement will prevent the European Summit from focussing on growth, the theme that many investors now want to see at the forefront as the European recession bites.

In general, I am inclined to see the European Summit as a slight negative for the markets until the Greek debt restructuring is resolved.

In the US too, there is a lot going on. Many companies will report their earnings this week, importantly including Amazon (on Tuesday). But, more important than this, there is a massive flow of economic data from the US. Key to watch are:
- House Price Index (Tuesday)
- Consumer Confidence (Tuesday)
- Construction Spending (Wednesday)
- ISM Manufacturing (Wednesday)
- Non-Farm Payrolls (Friday)
- Unemployment (Friday)
- ISM Non-Manufacturing (Friday)

We would also note that the first data of the week (personal income and spending) was fairly neutral today.

What to expect of the week? It is entirely dependent on the data. Good news on Greece, and/or positive data flow from the US will drive markets through the technical resistance they now face. But, disappointments on either front will cause some selling.

In short, we are 100% dependent on news that will flow over the next days. We believe that this rally will continue to last, but there is a healthy chance it is beginning consolidation or a mild sell-off in the near term.