Global markets have found themselves at an interesting juncture of underlying new year bullishness stalled by trepidation over several short-term headwinds (US debt debate, Q4 earnings, Italian elections etc etc) – the net result has been stalemate, something which has sunk volatility gauges even further. Not only did this week’s Merrill funds survey show investors overweight bank stocks for the first time since 2007, it also showed demand for protection against a sharp equity market drops over the next 3 months at lowest since at least 2008. The latter certainly tallies with the ever-ebbing VIX at its lowest since June 2007. Though some will of course now argue this is “cheap” – it’s a bit like comparing the cost of umbrellas even though you don’t think it’s going to rain.
Anyway, the year’s big investment theme – the prospect of a “Great Rotation” back into equity from bonds worldwide – has now even captured the sceptical eye of one of the market’s most persistent bears. SocGen’s Albert Edwards still assumes we’ll see carnage on biblical proportions first — of course — but even he says long-term investors with 10-year views would be mad not to pick up some of the best valuations in Europe and Japan they will likely ever see. “Unambiguously cheap” was his term – and that’s saying something from the forecaster of the New Ice Age.
For others, the very fact that Edwards has turned even mildly positive may be reason enough to get nervy! When the last bear turns bullish, and all that…
In the meantime, we’ll just have to keep monitoring the incoming news and data for direction. The balance of risks is still on the upside over the course of the year, but there will be bumps. Year-to-date on the MSCI World is still up almost 3 percent as vol ebbs and euro peripheral debt auctions and sovereign debt prices continue to fly.
We still have to see Q4 China GDP this week and the US earnings season is just cranking up. Judging by JPM and Goldman on Wednesday , the banks look ok so far. GE will get into the real world economy a bit more on Friday. Next week we then have the big techs like Apple and Microsoft and this is the sector making many anxious. Beyond that, the radar captures potential signals from Lower Saxony’s elections on Sunday for September’s German parliamentary polls, we have the first eurogroup of the year on Monday and outstanding issues such as legacy bank debts, a Franco-German summit in Berlin, January’s flash PMIs worldwide and UK Q4 GDP. Israel elections jump into the mix and a South African interest rate decision too as the drums sound again on the notorious ‘currency wars’.
As Moscow takes up the helm of the G20 grouping this year, Russian central banker Alexei Ulyukayev said on Wednesday: “We’re on a threshold of a very serious, confrontational actions in the sphere that is known … as currency wars.”
GLOBAL DATA/EVENTS TO WATCH
Germany’s Lower Saxony regional elections Sun
Euro group first meeting of 2013 Mon
African Union summit Mon to Mon, 28th
ECOFIN meeting Tues
German Jan ZEW index Tues
UK 10-yr gilt auction Tues
UK Dec govt borrowing data Tues
Israel national elections Tues
France’s Hollande visits Berlin Tues
US Q4 earnings Tues: IBM, DuPont, Google, AMD, Texas Instruments
US Dec existing homes sales Tues
Europe Q4 earnings Weds: Unilever, Novartis, Siemens
French Jan business climate Weds
EZ Jan consumer confidence Weds
UK Dec jobless Weds
BoE mins Weds
Jordan national elections Weds
Davos WEF forum Weds-Sun
US Q4 earnings Weds: Apple, MacDonalds
Global flash Jan manufacturing PMIs Thurs
OECD public debt forum Paris Thurs/Fri
Europe Q4 earnings Thurs: Nokia
SAfrica rate decision Thurs
US Q4 earnings Thurs: Microsoft, Amgen, Xerox, AT&T, Bristol Myers Squibb
U.S. 10-yr TIPS auction Thurs
German Jan Ifo Fri
UK Q4 GDP Fri
US Q4 earnings Fri: Halliburton, Honeywell, Proctor & Gamble
US Dec new home sales Fri