James Fournier

Market Views - 12th Feb 2012. Markets have declined slightly this week as investors' attention returned to Europe and on the lack of a deal regarding the Greece austerity programs. Rumors surfaced all week that a deal would reach completion, but as of Friday, not only was there no announcement, there were parliament resignations and strikes by the Greek people. To add insult to injury, Standard & Poor's downgraded 34 out of the 37 Italian banks it rates. This is not surprising, but coupled with these other issues, the downgrades led traders and investors to take profits ahead of the weekend. China posted mixed economic data this week, with stronger leading indicators offset by a hotter CPI and weaker export data, though much of this was attributable to the approach of the Lunar New Year. Both the U.K. and European Central Bank indicated that rates will remain accommodative, so the global easing theme continues in full force. On the earnings front, 71.6% of the S&P 500 companies have reported, with 63.7% beating, 26.3% missing and 9.8% reporting in line. Among the noteworthy posts this week were those from Anadarko (APC:NYSE), Yum! Brands (YUM:NYSE), Coca-Cola (KO:NYSE), Whole Foods (WFM:NYSE) and Visa (V:NYSE). Generally speaking, earnings are running at a 6.9% pace (excluding financials), a noticeable decline from the 16% seen in the third quarter but no worse than feared. Along with better economic data, that explains why the markets have rallied 6.53% year to date. The trading environment remains complicated and is very much sentiment / news driven. As such, conservative trade weightings should be applied as we must remain patient for the right opportunities. For the time being, the potential negative implications for Portugal and for the fate of the CDS market related to the Greek negotiations will continue to threaten the European markets. The bigger questions are whether the Italian government is solvent and whether Spanish banks can raise enough capital to cope with further massive real estate-related write downs (which are long overdue and have begun for some of the banks) and to cover their 75 billion of exposure to Portugal. A bank bailout would strain Spains spreads given that Spain is already struggling to get its deficit under control and its debt load continues to expand.