Is the upturn in Europe already over? Although it’s too early to anticipate such sorrows, there is little doubt that uncertainty is increasing, the Norwegian analysts at Orion Securities points out in this weeks global markets analysis. The economic growth was worryingly low in the fourth quarter as a solid expansion in France and the Netherlands was partly offset by contraction in Greece, Spain and Italy, while the German economy was at a standstill.
“If we’ll get back to the old highs at the stock exchange, we must have a positive clarification on Greece problems. We are, however, of the opinion that the finance ministers will take responsibility and put forward a sustainable solution.”
“Last week was characterized by uncertainty related to economies around the Mediterranean Sea, and the fact that the financial crisis in these countries can pull the rest of the world down with them. The market calmed slightly towards the end of the week on indications that members of the euro zone will take the necessary steps to ensure financial stability,” Orion Securities writes in this weeks global markets analysis.
The leading stock exchanges ended last week positive.
Wall Street took back some of the losses and ended up 0.9%, while the oil-heavy Oslo Stock Exchange closed down 2.4%.
The week was characterized by uncertainty related to economies around the Mediterranean Sea, and the fact that the financial crisis in these countries can pull the rest of the world down with them. The market calmed slightly towards the end of the week due to indications that members of the euro zone will take the necessary steps to ensure financial stability.
Some participants with insight into situation has hinted that the support will come in the form of direct loans to Greece.
More details are expected on Monday after a meeting among finance ministers in euro zone.
“The macroeconomic indicators point to the world economy is improving,” the Norwegian brokerage firm writes.
“U.S. Initial Claims numbers came in better than expected and indicates a gradual improvement in the labor market. The U.S. retail figures were also strong, while the Consumer Sentiment came in slightly weaker than expected.”
“The Chinese Central Bank, on the other hand, put a damper on the mood by signaling that the banks’ reserve requirement is increased by 50 basis points. We interpret the decision to suggest that authorities take responsibility by curbing the violent loan growth we have witness, but in the short to the decision put a damper on the markets.”
In commodity markets, there was broad upswing driven by a slightly weaker dollar, but also good demand.
Oil prices rose 4.8%, while aluminum and copper rose respectively 2.8% and 8.4%.
In the bond market drew long prime interest rates low up, while risk premiums on government debt to other countries around the Mediterranean Sea fell slightly back.
The foreign exchange market was characterized by high volatility last week.
The dollar rose 0.3% to 8-month high against the euro and 0.8% against the yen. The Norwegian krone rose 1.2% against the dollar and 1.6% against the euro.
Is Survival Of Greece Enough To Turn Negative Sentiments?
“In recent market comment, we have argued that the end of the correction can be in sight rather than the start of a phase of a new market declines. This is based on the expectation that the financial challenges of the countries around the Mediterranean Sea will be resolved.”
“The macro data that suggest that the world economy is in gradual improvement, and the bottom-up analysis indicates an attractive valuation of both Wall Street and the Oslo Stock Exchange. We do not reject the risk of a new financial crisis, but we see the risk/reward ratio at the Oslo Stock Exchange as attractive.”
“The current correction has largely been driven by concern of a new financial crisis. Investors are looking towards secure government securities and the dollar, and away from equities and commodities. The interest rate on government debt to other countries around the Mediterranean Sea have shot up and credit spreads on corporate debt has also just begun to expand.”
“If we’ll get back to the old highs at the stock exchange, we must have a positive clarification of the Greece problems. We are, however, of the opinion that the finance ministers will take responsibility and put forward a sustainable solution. Then risk readiness will soon return.”
“The macro data in recent weeks should not provide substantial grounds for concern. The global economy has bottomed out and will expand the future. Associated with uncertainty about improvement in U.S. unemployment, we believe in gradual improvement. The Chinese Central Bank warned last week that the banks’ reserve requirements will be raised by 50 basis points. The decision could put a damper the growth in the short term, but we believe the decision is sound and shows that authorities take responsibility by reducing the risk of bubbles and over-investment.”
“The bottom-up reviews indicates an upside. This method shows that both the Oslo Stock Exchange and Wall Street is cheap at current levels. While the Oslo Stock Exchange is priced at a P/E of 10.3 for 2010, Wall Street is traded at 13.7. This is low compared to the historical average.”
“Investors apparently disagreed with the analysts in terms of earnings. Either the investors are too pessimistic and that analysts are somewhat too optimistic.”
Oil-related risk at OSE in the short term
The oil price and commodities generally rose markedly last week despite a relatively strong dollars.
“Friday’s oil inventory report, however, was somewhat weak, and we are concerned about continued high invetnories. The main season for high oil consumption is coming to an end, and we believe oil prices may come under pressure if the U.S. demand soon pick up.”
“Continued cold weather in the eastern United States, however, put a floor under oil prices in the short term. Oil prices have picked up sharply with an increase of 4.8% last week. However, Oslo Stock Exchange continued the weak trend. We believe stock engines will follow oil prices, and with it the prospects are good for the coming week. The risk is related to a new decline in oil prices, and a decline at the leading Western stock exchanges, but we believe the market will stabilize given we get a positive clarification around Greece,” the analyst concludes.
Here’s a copy of the latest analysis from Orion Securities (Only available in Norwegian)
Orion Securities have two buy recommendations for the coming week:
1. Questerre Energy
2. DnB NOR ASA
European Markets Snap Shots:
Oslo Stock Exchange Benscmark Index (OSEBX):
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