Markets move up following Goldman’s report…
Results from the US banks are mixed thus far with a clear line between banks focused on retail banking (doing rather well like Wells Fargo or US Bancorp) and those depending more on investment banking (like JP Morgan, BNY Mellon and Citi who disappointed). Goldman Sachs is definitely in that second group and indeed the results are far off those reported a year ago (EPS 1,84 vs 3,79 a year ago) but due to cost cuts the number was still significantly above expectations of 1,24 USD.
Equity markets took advantage of that surprise and continued a rally, pushing the S&P500 futures clearly above the 1290 pts. mark. We wrote last week that in theory that means a rally towards 1355 pts. However, we are still cautious. Firstly, an improvement in the market sentiment comes partly from the exit from short positions as the rating cuts failed to hit the market hard (as some could have hoped). Secondly, we do not see why US indices should return to ’11 highs while growth outlook has clearly deteriorated (even in US) and the risks are more obvious.
…but debt markets in Europe are far from euphoria
While investors did not panic following the rating cuts, there is no euphoria on debt markets in Europe either. Italian bonds rallied a bit (not without a help from the ECB) but the 10y premium remains elevated at above 450bps vs bonds and the good news ends here. Spanish bonds maintained their status quo (which must be fine for now for government as it goes ahead with a bond tender today), France and Belgium lost a bit but a premium on Austrian bonds (that lost AAA like France but due to a smaller market size it is easier for investors to make adjustments) rose by some 20 bps. Portuguese 10Ys – not in the center of market attention right now – literally collapsed with the premium moving up by 215 bps to nearly 1300 bps.
It should not be surprising. The mountain of the debt that needs to be rolled over is still ahead and we are yet to see the details of a much awaited fiscal compact and the risk here is that it might be short of expectations.
Hot Thursday ahead
The next 24 hours are going to be really hot, at least in terms of the news coming to the markets. We got 4 macro figures in the US alone, including CPI, housing market (giving signs of improvement as of late), weekly claims (with a huge disappointment last week) and – last but not least – the Philly Fed. However, investors might want to pay even more attention to the Chinese flash PMI for January as the GDP for the 4th quarter was stronger than expected but investors are still unsure about the pace of deceleration in the largest Asian economy.
Thursday is the key date in the earnings season as well. With Bank of America and Morgan Stanley releasing reports before the US session we are going to have a fairly complete picture of the US banking sector. However, while the season has so far been judged on the numbers from banks, today we’ll get reports from key tech firm including Google, Microsoft, IBM and Intel (all after session). That will bring a lot of new light.
Finally, investors will wait for results of the Spanish bond tender.
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Przemysław Kwiecień PhD, Chief Economist |
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