January starting off with a thud
The chase by Frances Horodelski:
Happy January 5th and national bird day!Greece is again at the centre of the currency markets this morning as a the German magazine Der Spiegel quotes a German official as noting that the government is more comfortable with a Greece departure from the Eurozone given a more stable Eurozone since 2012. This is pressuring the Euro which is trading at levels last seen in late 2005/early 2006 and providing uncertainty to the global equity markets. This, despite the fact that 70% or so of Greeks want to stay in the common currency according to many polls. Note that following the article that suggests Germany is good with a Greek exit, new reports this morning from the Vice-Chancellor are back tracking saying that Germany wants Greece to stay in the union. This is what traders call “noise” – be careful how you trade “noise”. Bond markets around the world are falling (i.e. rates rising) while equity markets are also soft. U.S. futures are also down. Brent crude trading at $55 and WTI is trading near $51.
According to MKM Partners, the S&P 500’s negative last day of the year and first day of the year is unusual (the last time this happened was 2008) although technical analyst Jonathan Krinsky doesn’t put too much emphasis on the predictive nature of that weakness but 2008 wasn’t a very good year (January was down 6% in 2008 and the full year was down 38.49%). The S&P 500 has done this 10 times since 1980 and the market was up seven of those 10 times. While most markets are back to full complement this week, Russian equities will be closed Wednesday for the Russian Orthodox Christmas.
Beyond the macro concerns (including German inflation at 0.1% the lowest level since 2009), actual news is thin. The auto companies will be reporting sales for December (Honda already out with U.S. sales up 1.5% versus an estimated 6.3% gain and Fiat up 20% versus a +23% estimate). I’m seeing plenty of bullish reports on the big autos in particular GM and Ford but Toyota too. The earnings calendar is empty although Wednesday brings Family Dollar, Micron, Monsanto and WD 40. The big data day is jobs on Friday (for both Canada and the U.S.) and earnings season next week (Shiraz Mian from Zacks will provide a preview on BNN this afternoon). According to S&P Capital IQ, the outlook for earnings for 2015 have dropped from $132 at the end of the third quarter to about $126 today. The FOMC meeting minutes out on Wednesday could also provide market moving information. This week also sees the start of the Consumer Electronics Show (CES) in Las Vegas and BNN’s Michael Hainsworth will be reporting with all the new gadgets and technological stuff that they say you need. Watches are front and centre (but of course, Apple doesn’t attend so it will be everyone else’s watches and arm candy). Today we will be talking to the author of an RBC report that says the weakness in oil prices won’t be as bad as expected on the Canadian economy.
Bond traders might be focusing this week on an interview with Jeffrey Gundlach, the reigning bond king, in Barron’s on the weekend. He is of the view that the 10-year U.S. treasury yield could reach new lows in 2015 (previous low July 2012 1.388%) even though he sees the Fed raising rates in 2015 (as does virtually everyone). Oil prices are continuing to fall, lower yields around the world making the U.S. market still the most attractive and a rising U.S. dollar adds to its appeal. Watch the flattening of the U.S. yield curve and the implications for lenders and borrowers (and ultimately the economy). Others point out the possibility that the “slam-dunk” that is the ECB beginning to act (rather than just talk) in building its balance sheet to 3 trillion euros may not happen on cue as expected at the January 22nd meeting. Note that the ECB’s balance sheet has already been bumped some 8% from September’s levels but still some 850 million from the target.
Just a comment on money management and performance. I saw again over the weekend that 80% of active portfolio managers are underperforming their benchmark. Not to be an apologist but….doesn’t one think that maybe the benchmarks are wrong? Just a thought.
And if you’re looking for hot spots to worry about in 2015 according to the Institute for Economics and Peace, of the 162 countries they cover, only 11 were not involved in a conflict. And, we have lots of elections to consider this year beyond just Greece’s on January 25. There is Croatia on January 11, Nigeria on February 14th, Egypt in March, Finland April 19th and Turkey in June, the 13th.
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