Friday Optimism
After frustrating American and Asian sessions, looks like the markets have calmed down. After opening sharply lower European equities are trading at -0.6%.
What to say on the U.S. action yesterday? Maybe only that the technology has evolved since Black Monday in 1987 and the trading programs were shut down (changed) very fast enabling the markets to recover large part of lost grounds.
Conclusions? Investors are greedy and fearful at the same time. We will probably see latter outweighing the first in the short term.
Expectations? I expect that we will see steady selling from the institutional investor side for months to come, volatility will fall and the trend will probably move to negative one.
European debt problems? The events of the last few days are just an introduction to similar issues which will follow with economies of U.K., Japan and U.S. in focus.
Greece? The European banking systematic risk has been postponed for a couple of years. Debt will be restructured further down the road and I see no major issues for global financial system concerning Greece.
Portugal? Their refinancing needs are small in comparison to Greek, given serious handling of the situation by Portugal government (austerity measures), I think that they will manage to avert Greek scenario.
Spain? To be frank, their GDP to debt ratio is lower than in Japan, U.K, Greece, Portugal; it’s lower than the U.S. GDP to debt ratio; it’s even lower than the Eurozone average??? Yes their economy is in bad shape, but I think the reaction we are seeing in last days is overblown.
Italy and rest of Eurozone? Weak Euro will bring improved competitiveness to their exports and coupled by decisive action (that’s maybe a weakest link here) the Europe could escape this situation with no mayor scars.
To sum up…we will probably see some sentiment driven negative trends, but the situation is hugely overblown.