Europe In Rally Mode

Published by Filipe R. Costa on Mon, 14/01/2013 - 11:41 in
recession over

Daily Market Commentary for January 14: Optimism is spreading around and equities continue the massive uptrend started at the beginning of 2013, especially in Europe. The FTSE is now up 3.8% even though economic data is not supporting the rise.

It seems the bulls are here to stay as they have been pushing equities higher after Barack Obama reached a last minute deal regarding the fiscal cliff. The FTSE is up 3.8% in the year and Spanish and Italian markets are rising around 7%. Yields on sovereign debt are dropping and even countries like Portugal may return to debt markets this year.

The story above seems nice. In fact too good to be true. There’s no growth in Europe yet, and austerity measures haven’t done any good so far, as they just contributed to a rising unemployment and a sluggish economy. The high flying sentiment is not backed with real data and when some bad news hit again, we may assist to a massive drop in equity values.

A rising concern is the UK. Debt is becoming unsustainable and with no growth we just don’t know how the country plans to pay the loans back. At the current yields, something is really wrong. There’s no way this can stay this way for much longer and the bubble will need to be burst sooner or later.

For now, markets are in bullish mode mostly due to good corporate earnings in the US. But it is time to prepare for a possible downtrend due to the negotiations still to come in the US.