09.11.12 Friday Morning

European equities started the new week out on a negative note as mixed economic data out of China and resurfacing worries about Greece placed pressure on stocks. In order for Greece to receive the next tranche of bail-out funds more budget cuts will be needed. It needs to be seen if these important austerity measures will indeed pass a parliament vote scheduled for Wednesday this week.

European markets registered modest gains on Tuesday despite a wealth of poor macro data and nerves ahead of the U.S. Presidential elections with the results due in the early hours of Wednesday morning. Traders however focused on strong corporate data and easing eurozone tensions with Spanish and Italian bond yields coming off yesterday’s highs. Some of the strong corporate data included; BMW, Marks & Spencer, Adecco and Capital Shopping Centres which all helped to underpin the sessions bullish tone.

Obama’s re-election was not cheered by Wall Street with both the Dow and S&P 500 indices selling off strongly to its lowest levels since Oct 23rd. European markets followed suit, extending session losses. It must be noted that it is questionable if Wall Street is reacting this way to Obama’s victory or rather the fact that ugly economic data from Germany earlier and the European Commission making deep cuts to 2012 growth forecasts for eurozone nations.

Importantly in the US, with the elections out of the way, pressing issues such as the unresolved fiscal cliff are unnerving markets with fears that Obama will be unable to forge strong partisan ties with lawmakers against his policies in order to come to an agreement over the fiscal cliff. As we know, neglecting the fiscal cliff issue could shave a considerable amount of US GDP, sending the country back into a recession and force credit agencies to strip the US off its prized Triple A rating.

Clearly the reaction on Wall Street suggests that markets are not confident this issue can be resolved swiftly given the opposition Obama faces in the Republican dominated House of Representatives’. At the same time, some big institutions on Wall Street were hoping for a Romney win as Obama is likely to drive harsh regulation for financial services companies which would result in banks paying hefty charges.

ECB honcho Mario Draghi’s remarks on the eurozone economy shortly after the EC slashed growth forecasts for eurozone nations sent the euro currency to its session lows, European markets into the red and shot core government bonds higher in a sign of risk-aversion while gold futures rocketed. Tomorrow we have the ECB’s monthly policy meeting where we expect no change in policies however with the EC’s deep growth forecast downgrades for Germany, France, Spain and the UK, we cannot rule out further rate cuts in December and early next year.

European markets surrendered earlier gains on Thursday after newswires reported that an EU official said EU finance ministers are to delay a decision on Greek aid tranche for weeks with November 26 as the likely day of decision. This headline prompted a huge bout of risk aversion which saw investors dump risk assets, equities and the euro with the currency dropping to around $1.2721 from $1.2741 soon after the headline. Investors instead favoured core government bonds with German bunds getting a nice little lift. Typical flight to safety move as fears that EU ministers will leave Greece virtually broke in their delay to unlock funds.

European equities are trading higher this morning managing to stage early signs of a rebound after having extended their losses in after-hours trading yesterday evening as concerns about the fiscal cliff in the US continue to intensify. Supporting stocks this morning is news out of China where industrial production and retail figures both posted slightly better than expected results providing further evidence that the Chinese economy might be in the early stages of a turnaround.

It remains doubtful if stock markets indeed will be able to close out the week on a positive note today with neither the fiscal cliff worries in the US nor the uncertainty concerning Greece receiving the next tranche of bailout funds is likely to be solved in the very near term, this combined with a continuing weak outlook lasting well into 2013 in the eurozone will put stocks under more pressure next week.

Monday - Cobham PLC Q3 Interim Management Statement.

Tuesday – Workspace Group PLC Earnings Release, Talktalk Telecom Group PLC Earnings release, Capita PLC Interim Management Report, Oxford Instruments PLC Earnings Release and ITV PLC Q3 Interim Management Statement.

Wednesday – Moneysupermarket Group PLC Q3 Interim Management Statement, Prudential PLC Q3 Interim Management Statement.

Thursday – 3i Group PLC Half Year earnings Release, Euromoney Institutional Investor PLC Earnings Release.