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The Week Ahead

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Could have been (much) worse

Mon, Oct 19 2009, 10:13 GMT
by Przemysław Kwiecień

X-Trade Brokers, XTB

Investors reacted nervously to the announced loss of Bank of America (29 cents per share). What else is on the books of the banking giant (mis)led in the last couple of years by K.Lewis who left the bank in dishonor (and without a salary for this year). However, apart from this disappointment, the last week brought about mostly bullish news, far better than one would anticipate a mere half a year ago.

Despite a bearish comments from M.Withney (the same one who buoyed banking stocks previously) banks delivered decent results. Goldman improved revenues and incomes, rising nonperforming loans did not stop JP Morgan to show way better overall earnings and Citi disclosed a narrower loss. Again, the techs were on the bullish side. Intel not only delivered better results but maintained its optimistic tone from the previous quarter. More importantly, Google (conservative thus far) remarked that it was the time to build (again) – on top of improved results of course. IBM fit in that picture with improved results and whole year forecast. These results are not only better than one would imagine in the Spring but seem to confirm that stock prices are well on its way to “pre-Lehman” levels. Even a profit taking at the end of last week stopped already on the first support (previous S&P500 2009 maximum of 1076 pts.).

This week, again, will be dominated by companies’ results. Today’s report presented by Apple (after cash session in the US) will be followed by Coca Cola and Yahoo on Tuesday, Wells Fargo on Wednesday, McDonald’s on Thursday and Microsoft on Friday and by many more slightly less relevant names. All in all, a number of results will be much greater than last week. However, previous quarters tell us that the first impression matters the most. If this week’s announcements aren’t sharply off the line (especially to the downside), market reaction will be more moderate.

A bullish overall sentiment helps major European currencies. EURUSD recorded another record high for this year (1,4967) and even though a proximity of psychological 1,50 barrier caused a retreat into a 1,4829-1,4967 range trading, another tests of mentioned resistances are likely. It is worth noticing, that a test of 1,50 almost coincides with a test of 1,00 on the USDCHF. That may reinforce the barrier for a while, but once it is broken it may spell a sharp continuation of the trend. Fundamentally, since reasons for last year’s dollar appreciation are no longer valid, a comeback to 1,60 on the EURUSD is an open possibility. The pound, a clear champion last week, is another story. While at the beginning of the previous week the GBPUSD broke through a support of 1,5770 investors could have bet against the British currency. However, after a positive impulse from the EURUSD later on, some of them was probably forced to cover shorts and helped the Cable to retreat forcefully to as high as 1,64. In the longer term, as a further monetary expansion in the UK is still possible, the pound may remain under pressure.

Published on  Mon, Oct 19 2009, 10:14 GMT