February 23, 2015
Weekly Market Outlook
By Keith Schneider
Last week, after several days of pause and digestion at new highs, equity markets mostly roared after an initial nasty swoon Friday morning. The Greeks summoned their Gods and they performed a miracle. They brought forth a reprieve from bankruptcy and potential ejection from the EU for two whole days, yup two whole days. The new finance minister promised to work all weekend to come up with a plan acceptable to his new government and also satisfy their EU counterparts. The markets believe that a modified austerity program will be accepted, buying Greece a needed 4 month extension on the current terms of the bailout.
Essentially, Greece’s new government did an apparent about face (maybe, let’s see what happens on Monday). Statements by the Greek Prime minister seem to contradict that of his finance minister‘s regarding austerity. The Greek God of Confusion, Kydoimus is certainly lurking and it would be fool hardy to think this crisis is resolved. For now though, markets seem happy and believe one way or another, the EU will muddle thru this intact. The newly elected Prime Minister of Greece, elected on the premise of reversing austerity measures, will have a hard time selling any compromise to his constituents.
The other major geo-political issue plaguing the markets is the Ukraine and an increasingly belligerent Putin, which is still simmering even after a peace treaty was signed. A top NATO general is warning of a Russian attack if we supply lethal weapons, which is under consideration. So, again if it all seems a bit confusing, it is. However the markets seem to take the news with the glass half full perspective.
All of this resulted in a convincing breakout in equity markets from the recent compression. The Greek stock market rallied almost 10% on Friday, bringing its year to date performance positive. Gold, looking good initially this year, stayed under pressure and is just about unchanged YTD.
With the two key geo-political conflicts under control and market momentum re-established to the upside, expect more to come with the caveat that any one of these could once again unravel and cause a substantial selloff. Liquidity from central banks is still flooding the markets. Let’s not lose sight of the oil market and deflationary forces also still lurking in the background. The halt in the plunge and bounce in oil over the past few weeks was also taken as a positive.
Every week you'll gain actionable insight with: