Markets Outlook (04/23/12 – 04/27/12)

Dear Reader,

Earnings report, a signal of how the underlying microeconomics of firm activity is doing per dollar spent relative to competitors operating within sensitive globalized macroeconomic conditions, provided a gauge to market this past week.  The talk out of European centered IMF-G20 meetings focused around increased financial support to essentially shield investors (holders of sovereign and non-sovereign European debt) to enable market confidence, setting the stage for investors to buy into the notion of an economic recovery for peripheral Europe, and to occur sooner rather than later. Overall, the earnings reports showed that economic activity was sustainable to a level at or above Wall Street estimates given a global macroeconomic slowdown.  Corporate cash accounts are at relatively high levels given previous years enabling a higher working capital ratio.

NB: The change in percentage of each index was calculated using open to close and not close to close.  Therefore, the opening on Monday to the close on Friday was used and not the close on Friday (prior week) to the close on Friday (end of current week).

Over the past week, the Dow closed up 0.45% at 12913, after receiving the news of the successful collaboration between the IMF and members of the G20 nations.  The Dow contains weighted stocks that are more sensitive to global macroeconomic conditions.  The Nasdaq closed down -.81% after being up for the week on early Thursday.  The Nasdaq given core components (holdings) of the index, is more representative of economic conditions within the U.S.  The Nasdaq increased tremendously during “Operation Twist” to which, Ceteris Paribus, downward volatility within the index going forward is to be expected.  The S&P500 experienced a marginal loss and closed down -.08%.  On Thursday, all three indices tracked each other with a very low standard deviation which had sequentially narrowed over the week starting from Monday.  Buying activity into U.S. equities on Friday showed the Dow to be the index of choice.

In Europe, the FTSE 100 closed up 2.01% after closing down the previous week.  Tuesday proved to be the day within the week where buying within the index linearly increased and then stabilized until Friday’s close.  The DAX closed up 2.83% on improved German business confidence though the index did pare lower after the mid-week ebb.  The CAC40 had a marginal loss and closed down -.05%, and of the three, is the only index to show a loss.  French elections and the potential of an overall ‘restructuring’ of how France operates ostensibly contributed to the Thursday and Friday sell off.

As European indices increased amid worries and concerns over peripheral Europe and its debt and growth crisis, the market looking into next week should remain focused on upside and downside volatility, which is perilous for risk managers managing VaR.  The market has been receptive of additional debt issues from Europe with Spain’s economy as the underlying ‘asset’, the Spanish bond yield(s) will remain critical as a measure of economic sustainability of these debentures going forward.  The Italian 10yr yield is also critical as the Italian/Spanish spread has been narrowing.  Italy is of major concern to which the market may choose to react only to one tail-risk disaster at a time.

The Nikkei 225 closed up .46% over the past week over major gains on Wednesday coupled to a steady and marginal decrease or stretched sell-off Thursday and Friday.  The HSI closed up 2.25% this past week with major buying on Wednesday, and paring higher Thursday and Friday; Hutchison (0013.HK) closed up 1.34%.  The STI closed up 0.68% this past week experiencing buying on the Wednesday open and remaining steady throughout the week.  Expected growth in China and the Pacific Rim in general should maintain the fundamentals of Asian indices as well as the additional easing from the Bank of Japan.  The Aussie trading lower against Pacific based currencies should also bolster Australian exports going forward.

Gold closed up 0.47% last week after experiencing a sell-off on Thursday and Friday.  The expected shift from gold to stocks seemed to take place amid the expectation of additional liquidity into the market and the bolstering of IMF based funding to help avert a major European debt default from at least Spain.  Oil (WTI) closed up 1.41% over the past week, experiencing considerable bidirectional volatility subject to the redistribution of capital or the reallocation of portfolio holdings.  However, that will only explain the speculators.  The higher WTI is also a function of underlying supply shock risk to which there is currently an over supply, at least in the U.S. energy markets.  The summer months may however prove otherwise with regard to an over supply.  WTI touched $105.20 on Tuesday.

Thank you for reading.

Have a wonderful close to your weekend.


Vidia – CEO, Ricochet Alternative Asset Management



One thought on “Markets Outlook (04/23/12 – 04/27/12)

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