Nervous Markets Ahead Of Greek Bond Sales

The Greek authorities are considering placing a loan this week. It has been wildly speculated that the German government will guarantee parts of the loan. The result of this placement is likely to influence the direction of the major stock markets.

“The last disappointing economic reports from the U.S. and Europe give reason for concern, but most likely they’re due to temporary factors such as bad weather.”

Orion Securities


“In the short term, we believe the market will move sideways and be characterized by high volatility,” analysts at the Norwegian brokerage firm Orion Securities writes in their weekly macro analysis. There’s a lot of nervousness among investors, and the acute debt problem in Greece have to be solved before the stock markets can make sustainable gains, according to the analyst.

Last weeks markets was also characterized by high volatility and uncertainty.

The Oslo Stock Exchange followed the oil prices and ended down 1.9%.

Wall Street retreated slightly; down 0.7%.

The markets was driven by major fluctuations in currency, the uncertainty surrounding Greece and indications from Moody’s that the rating agency will cut the country’s credit rating further.

The U.S. macro figures put a damper on optimism.

The index for consumer expectations in the United States broke the positive trend with a fall from 56.5 in January to 46.0 in February. The sub index for the current situation fell to 19.4, its lowest level since 1982, indicating that the U.S. consumer is still struggling.

“Thursday’s labor market report questioned the improvement in labor market. While most economists estimate that the number of  new unemployed should under 420.000-430.000 for it to be consistent with rising employment, it was reported to be about 496,000 last week,” the analysts at Orion Securities notes.

Friday’s macro figures came in mixed: Chicago PMI and UoM Consumer Confidence came in better than expected, while sales of used homes disappointed.

India could, however, report on good outlook for 2010 with expected GDP growth of 8.8%.

Commodity markets ended the week in negative territory. Oil prices fell 0.8%, while aluminum and copper fell 1.0% and 1.7%, respectively.

The foreign exchange market was also driven by nervousness.

The dollar decreased 0.1% against the euro, and 3.0% against the yen.

The Norwegian krone appreciated 0.3% against the dollar, and 0.5% against the euro.

In the bond market, long state interest rate fell, while the risk premiums on Greek government debt continued its  ascension.

The price of credit insurance on the most creditworthy North American companies rose slightly during the week and caught up some of the decline from the previous week.

The credit risk are still traded, however, still well below this year’s top listing at February 8th.

The difference between the 10-year and 2-year U.S. government interest rates reached historic peak levels last week with a difference of 2.94-percentage point.

Previous spreads have been in excess of 2.5 percentage points. These were recorded in 2003 and 1992.

“The large difference may indicate that the interest rate market is somewhat more positive than economists with respect to economic growth and inflation and expects interest rates to rise sooner rather than later.”


The Bottom-up evaluation of the OSEBX and S&P’s 500 shows good earnings and strong growth.

For the S&P’s 500,  the consensus estimates for 2010 P/E is 14.1 falling to 12.0 in 2011.

“With record low interest rates, this appears to be low, and we believe that as 2010 progresses and focus on 2011 increases, the multiplier will expand to 14 – 15.”

“But for this to happen, either share prices must go up or earnings estimates must come down. In comparison the OBX Index is traded at 9.5 times 2010 earnings, falling to 7.9 for 2011. according to our estimates.  We lean against that the share prices will going up, but if we have a new recession it is obvious that the estimates are overestimated.”

In a world with record-low interest rates, it is unreasonably low, and as 2010 progresses and the focus towards 2011 increase, we expect the multiplier to expand to 14 - 15. But for that to happen, either share prices must climb 15 - 25% or earnings estimates has to be equivalent adjusted down.

“The uncertainty is still large, and the danger is not over,” Orion Securities points out.

Risk premiums on Greek debt and for the most creditworthy companies has risen in the past week, and the trend is still negative.

“Historically, the stock markets have rarely done well in times of rising credit spreads. We therefore recommend to follow the developments in credit market. One possible driver of increased risk aversion is additional uncertainty around Greece, and indications that more countries will have problems with financing of budget deficits.”

“Authorities in Greece are considering placing a loan in the coming weeks where it has been speculated that the German authorities will guarantee a part of the loan. The result of the placement will likely to influence the direction of the stock market,” the analysts concludes.

Here’s a copy of the full analysis from Orion Securities (Only available in Norwegian).

(Including recommendations for stocks listed at Oslo Stock Exchange)

Related by the Econotwist:


Fitch: Global Sentiment Improving but European Concerns Persist

Germany Failed To Pay WWII Compensation, Greek Minister Says

Swedbank Buy Greek Bonds With Estonian Money

Wave Of Protests To Hit Troubled E.U. States

EU Have “Instruments” To Save Greece, Commissioner Says

Naked self-interest

Why Should EU Bail Out Greece?

EU Wants Answers From Wall St. On Greek Debt

End Of The European Upswing?

Traders Short Record Amount of Euro

Global Markets: “The Fear Is Still Out There”

Denmark In Danger Of Becoming The “New Greece”

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