Investors will be digesting news from Europe this week, as Greece’s parliament approved strict financial reforms needed to obtain a new bailout package as protesters burned buildings in Athens. Good morning, this is Kristin Bianco with the Week Ahead Market Report for February 13, 2012.
How do you identify great contrarian investment opportunities?
Two ways. First, rather than limiting yourself to your national borders, you seek out opportunities worldwide. Next, you insist on two essential factors: abject pessimism and extreme valuations. That’s exactly what we have in European stocks today.
Ask your friends and neighbors which stocks in Europe they’re buying right now and they’ll ask you to sit down so they can feel your forehead. After all, no one in his right mind would buy stocks in a region where socialist policies reign, economic growth is almost nonexistent and the currency – the euro – is coming apart at the seams, right?
Wrong. The fact that almost no one is enthusiastic about Europe right now – indeed, most see it as a ticking time bomb – tells you that sentiment is entirely negative.
How about valuations? Those are compelling, too. The benchmark MSCI Europe Index, for example, currently sells for just 9.8 times estimated 2012 earnings, versus an average of 17 times earnings over the past 25 years. Plus, the drop in prices has boosted the dividends on many of the well-known global companies based in Europe.
In sum, you have low valuations, high dividends and extremely negative sentiment. Yet the vast majority of investors reading these words won’t plunk a dime in these markets. (And, if history is any guide, a year or two from now they’ll scratch their heads and say they just can’t fathom how European stocks could have rallied so strongly.)
Not that buying contrarian investments in this troubled region doesn’t present some risks. After all, the European Central Bank (ECB) is propping up troubled banks. Many Eurozone countries are teetering on the brink of recession. And there’s a decided lack of bold political leadership in the region.
But the good news is that all these factors are already well known and fully priced into European stocks. (That’s why they’re so darn cheap.) Meanwhile, the U.S. economy has stabilized – reducing a big risk to the global economy – and the ECB has at least addressed liquidity problems at the banks.
Plus, a weaker euro is actually boosting the earnings prospects for the many companies that export to other parts of the world where economic growth (and currencies) are stronger.
Prime examples are:
So how do you play this contrarian investment opportunity? One of the best ways is with a low-cost, Europe-focused ETF like the Vanguard MSCI Europe Fund (NYSE: VGK). It’s easily the least expensive ETF in the sector with annual expenses of just .14%.
Companies in the U.K. account for around 34% of VGK’s assets, while France, Germany and Switzerland make up approximately 40%. The fund holds more than 450 stocks, but a quarter of its $2.4-billion portfolio is in its top 10 holdings, which include Vodafone, Royal Dutch Shell and HSBC Holdings. You’ll earn a 4.4% dividend here.
If you want to benefit even more from a potential slingshot recovery in these markets, try the WisdomTree Europe SmallCap Dividend Fund (NYSE: DFE). It keeps a third of its assets in smaller British companies and the rest in small-cap stocks in the Eurozone.
Remember, when an equity market rallies, the small-cap issues generally outperform larger stocks. And your contrarian investment will get a whopping 5.8% dividend here.
So there you have it, two great ways to play one of the most compelling opportunities in the world right now. Of course, most investors simply cannot bring themselves to invest against the herd. That’s how they got stuck in internet stocks a decade ago and residential real estate five years ago.
It’s also why this is perhaps one of the best contrarian investment opportunities today.
Good Investing,
Alexander Green
Article by Investment U
London Gold Market Report
from Ben Traynor
BullionVault
Monday 13 February 2012, 08:30 EST
SPOT MARKET gold prices touched $1733 per ounce Monday morning – 0.5% up on last week’s close – as stock markets, commodities and the Euro all rallied following Greece’s vote in favor of new austerity measures.
Silver prices meantime hovered around $33.90 per ounce – 0.8% up on the end of last week – while government bond prices dipped and the Dollar fell on the currency markets.
“The weakness in the Dollar…creates a bit of demand for gold,” reckons Bernard Sin, head of currency and metal dealing at Swiss precious metals refiner MKS.
By Monday lunchtime, Euro-denominated gold prices were roughly where they ended last week, at around €42,000 per kilo (€1306 per ounce).
Greek lawmakers last night approved a fresh austerity package, including public sector layoffs, minimum wage reduction and pension cuts. A reported 80,000 people took to the streets in protest, while press reports said up to 30 buildings were firebombed.
Antonis Samaras, leader of the New Democracy party and widely tipped as Greece’s next prime minister, expelled 21 members from his party for voting against the measures. Former prime minister George Papandreou, leader of the socialist Pasok party, also expelled members who did not support the measures.
Eurozone finance ministers are due to meet on Wednesday to review the new agreement, and potentially sign off Greece’s €130 billion second bailout. This in turn should pave the way for a deal with Greece’s private creditors to reduce the country’s debt burden, as well as stave off a default on March 20 when €14.5 billion of 3-Year Greek bonds mature.
“The government may yet find that approving the new measures…proves to be far less of a challenge than implementing them in the months ahead,” reckons one gold bullion dealer here in London.
“We are still looking for more measures out of Europe before we see a sustainable risk rally,” adds Ong Yi Ling at Phillip Futures in Singapore, who expects gold prices to hit resistance at $1760 per ounce.
“That will be the first resistance and the second one is at about the $1800 level. For gold to break the $1800 level, we need more measures, I would say.”
Here in the UK, the latest Bank of England figures relating to Project Merlin – the agreement between the UK government and British banks aimed at promoting lending to business – show that banks lent £214.9 billion overall to business in 2011, against a target of £190 billion.
However, the target for smaller businesses was missed, with £74.9 billion lent versus a target of £76 billion. The final quarter of last year saw a 3% drop in net lending.
“The Merlin targets have failed,” says Andrew Cave, head of external affairs at the Federation of Small Businesses.
“Talking to our members, 30% of them say they missed a growth opportunity because they weren’t able to access finance at the right times, so there is still a problem.”
“The reality,” adds Lee Hopley, chief economist at manufacturers’ federation EEF, “is that small and medium enterprises continue to be frustrated by the cost and terms and conditions around lending, with some opting out of using external finance altogether. This cannot be good for growth.”
China’s government has ordered the country’s banks to begin rolling over its loans to local governments, according to the Financial Times. When the global financial crisis broke in 2007-8, the state launched a massive stimulus program. Local authorities in China now have debts worth an estimated $1.7 trillion the FT says.
US president Barack Obama will today call for higher taxes on millionaires and billions of Dollars’ worth of infrastructure projects to create jobs as part of his 2013 budget proposals, news agency Reuters reports.
“I think there is pretty broad agreement that the time for austerity is not today,” White House chief of staff Jack Lew said Sunday.
Obama is expected to repeat his call made during his State of the Union address for the introduction of the so-called Buffett Rule, which would see millionaires pay a tax rate of at least 30%.
The net difference between bullish and bearish gold futures and options contracts held by traders on New York’s Comex – the so-called speculative net long – went up for the fifth week in a row over the week ended last Tuesday, according to the latest data from the Commodity Futures Trading Commission.
The spec net long and open interest both hit their highest levels since the week ended 15 November.
“It is likely that net spec length may consolidate or even decline in the week to 14 February as futures open interest in the period 8-10 February fell in parallel with the gold price,” reckons Carl Firman at precious metals consultancy VM Group.
“Options open interest in this period also shows a rise in puts relative to calls, suggesting some doubt may be creeping into the sustainability of the price rally.”
The volume of gold bullion held to back shares in world’s largest gold ETF the SPDR Gold Trust (GLD) meantime is at its highest level since 20 December, having risen 0.1% over the course of last week.
Gold value calculator | Buy gold online at live prices
Editor of Gold News, the analysis and investment research site from world-leading gold ownership service BullionVault, Ben Traynor was formerly editor of the Fleet Street Letter, the UK’s longest-running investment letter. A Cambridge economics graduate, he is a professional writer and editor with a specialist interest in monetary economics.
(c) BullionVault 2011
Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.
The equity market took a breather last week and we saw a smalle correction. This week could easily mean more correction as events in Greece once again take the spotligth.
Jyske Bank Senior Strategist Ib Fredslund Madsen outlines this weeks most important events and economic data.
By TraderVox.com
Tradervox.com (Dublin) – The UK economy is set to improve as signs of global economic growth are eminent. In the past few weeks reports from leading economies in the world has indicated an improved economic situation which analysts are taking as a sign of stable global economic condition. The recent news from Greece has given hope to the GBP and the UK economy is set to avoid recession.
The Confederation of British Industry expressed optimism of improved recovery and has also understated the need for quantitative easing by the Bank of England. CBI Director General Mr. John Cridland said that there are signs of optimism and he expects to see some marginal growth in the economy this quarter. He stated that in their growth forecast, they do not see any need for another QE from the BOE.
The UK economy had been affected negatively by the euro-debt crisis which resulted to a decreased economy in the fourth quarter. This necessitated the bank of England to make bond purchases on the 9th of February this year. According to Cridland, the signs of recovery from the Greece debt crisis and the positive sentiments from major world economies show resilience hence optimism in the prospect of the UK economy.
He also added that the recovery of the UK economy will depend on the successful resolution of the Greek debt crisis. The approval of the austerity plan by the Greek lawmakers has been seen as one of the signs that the crisis is headed to successful resolution. Another sign that has been central to the recovery prospects is the advancement of the stocks. The MSCI All-Country World Index gained .5 percent while the Stoxx Europe 600 Index increased by .8 percent.
The successful weakening of the yen through government intervention is also another sign of Japan’s economic recovery. The UK economic forecast has picked up among the members of CBI following those efforts as well as the ECB’s decision to increase liquidity to the banking system in the Eurozone. The signs of improvement in the euro area, US, and Germany signal an improved global economy which is conducive for UK economic recovery.
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Source: ForexYard
The euro took a strongly bearish turn to close out last week, after hitting a two month high against the dollar on Thursday. The downward correction was largely attributed to fresh concerns that Greece may not get a sorely needed bailout it needs to avoid defaulting on its debt. Greek news is once again likely to dominate market sentiment this week. Traders will want to pay particular attention to a meeting on Wednesday of euro-zone finance ministers. Any announcements regarding Greece following the meeting could lead to major market volatility.
The US dollar saw gains virtually across the board to close out last week, following negative euro-zone news that caused investors to shift their funds to safe-haven assets like the greenback. The EUR/USD closed Friday’s session at 1.3196, well below the two-month high of 1.3321 the pair reached on Thursday. Against the Japanese yen, the dollar largely maintained its upward momentum, and was able to close out the week at 77.61. Analysts attributed the USD/JPY’s recent uptrend to positive employment data out of the US that has bolstered confidence in the economic recovery.
Turning to this week, traders will want to continue monitoring the situation in Greece for clues as to where the market is heading. Last week’s news cast doubts on whether Greece will qualify for a second bailout package it needs to avoid defaulting on its debt. While analysts are still confident that a bailout will be secured, they are quick to warn that the euro is still in a very fragile position. The dollar may see further upward movement if any additional negative Greek news is released in the coming days.
Additionally, a batch of US economic indicators set to be released throughout the week may influence dollar pairs. Tuesday’s Retail and Core Retail Sales figures, Wednesday’s TIC Long-Term Purchases and Thursday’s weekly Unemployment Claims will further illustrate the current state of the US economy. Positive news may benefit the USD against its main rivals, the EUR, GBP and JPY.
Following Thursday’s news that Greece reached a deal on an austerity package that would pave the way for a bailout, the euro shot up to a two-month high against the US dollar. That trend drastically reversed itself on Friday, as the combination of demands for additional spending cuts in Greece, as well as political disagreements in that country cast doubts on whether a bailout will be delivered. The EUR/USD closed out the week at 1.3196. Against the Japanese yen, the common currency dropped almost 100 pips on Friday before staging a slight correction. The EUR/JPY pair closed the week at 102.42.
This week, traders will want to closely monitor any developments regarding the current Greek crisis. Particular attention should be given to a meeting of euro-zone finance ministers on Wednesday, which will likely shed some light on the state of current talks to deliver the bailout package to Greece. Most analysts are predicting that Greece will eventually receive the bailout it needs in order to avoid default. The euro may see some upward movement, if and when, the bailout package is agreed upon, but traders should be warned that the possibility for further euro bearishness is still very real.
The Australian dollar saw some bearish movement to close out last week. The currency moved down against most of its major currency rivals, following negative euro-zone news that drove investors away from riskier assets. The AUD/USD closed Friday’s session at 1.0671, well below the six-month high it reached earlier in the week. Against the Swiss franc, the AUD closed Friday at 0.9776, down over 100 pips from earlier in the week.
This week, Aussie movements will likely be determined by euro-zone news. Providing a Greek bailout agreement is agreed to in the coming days, the AUD could see a boost along with other riskier assets. That being said, any further negative news could drive investors back to safe-havens which may cause the AUD to drop further.
Renewed fears that Greece could default on its debt weighed down on riskier currencies and commodities, like crude oil, during trading late last week. Commodities like oil often go down in price when they become less affordable to international buyers. Crude closed out the week at $98.99 a barrel, almost a full dollar below where it was trading during Thursday’s session.
This week, in addition to following the ongoing developments in the euro-zone, oil traders will also want to watch fundamental indicators out of the US. Some risk taking might return to the market if any of the US fundamentals show growth in the US economy. The news could signal increased American demand in for oil, which may help boost prices.
The weekly chart’s Stochastic Slow is currently forming a bearish cross, indicating that downward movement could occur for this pair in the near future. This theory is supported by the daily chart’s Williams Percent Range, which is hovering close to the overbought zone. Traders may want to go short in their positions.
A bearish cross on the weekly chart’s Stochastic Slow indicates that downward movement may occur in the coming days. That being said, most other long-term technical indicators show that this pair is range trading at the moment. Traders may want to take a wait-and-see approach, as a clearer picture may present itself later in the week.
Most technical indicators on the daily chart show that this pair is overbought and could see a downward correction in the near future. These include the Relative Strength Index, which has cross above 70, and the Williams Percent Range, which is at -10. Going short may be the preferred strategy for this pair.
The daily chart’s MACD/OsMA has formed a bullish cross, which typically means that upward movement could occur in the near future. This theory is supported by the Stochastic Slow on the weekly chart. Traders may want to go long in their positions for this pair.
The daily chart’s Stochastic Slow has formed a bullish cross, indicating that upward movement could occur in the near future. This theory is supported by the Relative Strength Index on the 8-hour chart, which has crossed into oversold territory. Forex traders may want to go long in their positions ahead of a possible upward breach.
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Last week AUD/USD went as high as 1.0844 but found resistance there and the sharp downward correction brought AUD/USD down to 1.0640 before the weekly closing at 1.0673.
On one hand the sharp downward move creates the doubts about the continuing upward move but please note that such a correction could not be ignored. Also please note that the downward move has not broken below the supports of either 22-day EMA or the Kijun-sen support of daily Ichimoku cloud. The currency pair found support almost exactly at the 22-day EMA as well as just above the mentioned Kijun-sen. You may also check the Watchouts-Observation-Alerts sub forum on our Forex forum for a post made about this on Friday.
For the next week, initially we expect some sideways move as long as a firm break below the above mentioned supports i.e. 1.0600 does not take place. 1.0600 is little below both the above mentioned levels. With a support over 1.0600, we expect further upward move to retest the recent 1.0844 and with a break over that towards 1.1000 resistance and with a break over 1.1000, further towards 1.1079 high.
On the downside, if AUD/USD breaks below 1.0600 then we would expect further downward correction towards 1.0470/1.0440. 1.0470 represents the 55-day EMA support as well as the Fibonacci 38.2% retracement of the upward move during December 15th, 2011 to February 8th, 2012. But even such a move can only be considered as a consolidation move and will not change our bullish outlook. We will expect a strong support in this range i.e. 1.0440/1.0470.
Overall we stay bullish for AUDUSD and will be expecting a move towards 1.1000 if the support levels mentioned above hold good.
You may also check the weekly audusd forecast/Outlook and daily aud/usd analysis at ForexAbode.
By TraderVox.com
Tradervox.com (Dublin) – Euro rose to a two-month high after the Greeks Prime Minister announcement of the approval of the austerity measure required for the second financial bailout. The region currency rose against the Great Britain Pound and the yen as a result of this announcement. The approval which had been stalled due to differences in the spending cuts proposal turns the focus to the Finance Ministers meeting on Feb. 15th. Investors as well as analysts will put a close eye on the meeting as it is expected to decide whether to release the international rescue.
The Australian dollar showed some strength against the dollar before a report showing that the retail sales increased last month. This has boosted demand for higher-yielding assets. Many analysts however are very pessimistic about the recent gains by the euro and they are saying that this is short lived as the crisis in Europe is far from being resolved despite the positive news from Greece.
The euro rose to $1.3268 at 10:45 am representing a gain of 0.5% which is a two-month high. This is after it had fallen from its highest since Dec. 12 of 1.3322 on Feb. 9. Against the yen, Euro advanced 103.02 which represent an increment of 0.6 percent. It rose 0.4 percent against the GBP to settle at 83.92 British pence. So far, euro has gained 2.3 percent against the dollar which remained unchanged against the yen.
With Greek lawmakers agreeing on the austerity measures, all eyes are now focusing on the Brussels where decision to give Greece a second bailout of 14.5 billion euro will be made. According to Valentin Marinov, a senior currency strategist at Citigroup Inc., analysts and investors are cautious about the prospects of the euro amidst the debt crisis. However, according to some surveys, the euro has gained against major world currencies over the past week and if the crisis in Greece is resolved amicably, the 17-nation currency will be stronger than most of its peers.
Article provided TraderVox.com
Tradervox.com is a Forex News Portal that provides real-time news and analysis relating to the Currency Markets.
News and analysis are produced throughout the day by our in-house staff.
Follow us on twitter: www.twitter.com/tradervox
By TraderVox.com
Tradervox.com (Dublin) – There is huge doubt clouding the thinking of market participants about Greek austerity measures. Consequently, there hangs a certain amount of risk aversion in the markets and this affected the dollar positively. The US dollar enjoyed a very good day as participants preferred to long the dollar over the euro.EUR/USD closed the day at 1.3173 which was a whopping 100 pips below its opening price.
Despite the faith shown in the USD on Friday, reports that exited the US were generally mixed. Trade balance posted better results than expected as we saw a figure of $48.8 Billion deficit which was slightly better than most analysts expected. However, preliminary University of Michigan Consumer Sentiment survey data did not meet what analysts had expected. We saw a reading of 72.5 whereas analysts had expected a reading of 74.4.
We shall look ahead to the high profile events we expect can move the market this week and there are several expected.
Monday shall represent a quiet day as far as US reports are concerned as we expect no major announcement today.
Tuesday, we expect the retail sales report to be released. We think it will show a 0.8% gain although the core data may show a slightly lower increase of 0.6%.
Wednesday, there is the TIC long term purchase. Forecast shows we can expect a figure of 62.3 billion US Dollars, which if we do, is a significant increase from last month’s figure of 59.8 billion US Dollars. What this shall imply is that the value of purchase by foreign investors in the US is significantly greater than that of US locals.
On Thursday, we have several reports in the shape of building permits and housing starts report, Producer price index, Fed manufacturing index for Philadelphia and initial jobless claims.
CPI data shall conclude the week for US reports on Friday and a 0.3% gain in the core and mainstream version of the reports is what we anticipate.
This week therefore presents us with a lot of Dollar related reports which may push for a very volatile dollar.
Article provided TraderVox.com
Tradervox.com is a Forex News Portal that provides real-time news and analysis relating to the Currency Markets.
News and analysis are produced throughout the day by our in-house staff.
Follow us on twitter: www.twitter.com/tradervox
