At the time of writing the markets are higher on the day. They started the week higher, traded down and now they are rising again. This uncertainty is exactly what we predicted for the week before the Greek election. Last week, we experienced positive stability as markets foresaw an assistance package for Spanish banks. The S&P 500 rose 3.7%, the Eurostoxx 50 climbed 3.6% and Russia rose 5.9%. The euro stabilised (up 0.7%) and oil rose 1.1%.
This week, as mentioned, we are struggling for direction – an issue that most expect. The media has pinned much of this uncertainty on the conditions of the Spanish bank rescue, but that move was: a) priced by markets last week, and b) not designed to drive financial markets, rather to halt the removal of deposits from the Spanish banking system and lift the overhang of uncertainty over Spain ahead of what may be a volatile time.
So, our focus is on the Greek election. Investors are uncertain how to play it because a black-out on Greek opinion polls reduced clarity about how the nation’s mood is evolving. There is a possibility that the election will lead to the selection of anti-austerity parties, which will bring a swift confrontation with Europe, leading to a quick exit, but the more likely course is that the election will bring no clear decision about Greece’s ongoing struggle. Either way, it is hard to imagine any large wave of positive sentiment hitting the markets this week.
Equally interesting is what comes next. While the Greek election is on Sunday, the FOMC will make an interest rate decision on Wednesday (20 June). If the Greek election unleashes turmoil on markets, the Fed meeting will nicely time to provide policy support. Chairman Ben Bernanke’s comments last week should not be read as a sign that further easing is not being considered, rather that the Fed would prefer not to let markets pre-empt policy shifts that are dependent on future political and social developments around the world.
We have a cautious stance this week, but we are planning our strategies as we expect the market to create excellent buying opportunities in the coming weeks. Markets are already cheap, but keep your powder dry, and watch all risky assets. If there is a strong sell-off, we will go for cyclical companies – mainly commodities stocks. If the market movement is less dramatic, we will continue to favour high dividend stocks and bonds.
Best regards,
James
This week, as mentioned, we are struggling for direction – an issue that most expect. The media has pinned much of this uncertainty on the conditions of the Spanish bank rescue, but that move was: a) priced by markets last week, and b) not designed to drive financial markets, rather to halt the removal of deposits from the Spanish banking system and lift the overhang of uncertainty over Spain ahead of what may be a volatile time.
So, our focus is on the Greek election. Investors are uncertain how to play it because a black-out on Greek opinion polls reduced clarity about how the nation’s mood is evolving. There is a possibility that the election will lead to the selection of anti-austerity parties, which will bring a swift confrontation with Europe, leading to a quick exit, but the more likely course is that the election will bring no clear decision about Greece’s ongoing struggle. Either way, it is hard to imagine any large wave of positive sentiment hitting the markets this week.
Equally interesting is what comes next. While the Greek election is on Sunday, the FOMC will make an interest rate decision on Wednesday (20 June). If the Greek election unleashes turmoil on markets, the Fed meeting will nicely time to provide policy support. Chairman Ben Bernanke’s comments last week should not be read as a sign that further easing is not being considered, rather that the Fed would prefer not to let markets pre-empt policy shifts that are dependent on future political and social developments around the world.
We have a cautious stance this week, but we are planning our strategies as we expect the market to create excellent buying opportunities in the coming weeks. Markets are already cheap, but keep your powder dry, and watch all risky assets. If there is a strong sell-off, we will go for cyclical companies – mainly commodities stocks. If the market movement is less dramatic, we will continue to favour high dividend stocks and bonds.
Best regards,
James
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