My wise and learned friend, hereafter to be known as MWALF, who heads up a respected equity sales trading desk for one of the larger banks in London, has this to say on current events and outlook
With the Topix gaining 5% this morning as Q1 GDP gets revised up and Abenomics gets a big shot in the arm ahead of the BOJ meeting and Wall Street posting solid, late gains on Friday all is looking rosy again. I think the best way to describe the employment data is “not as bad as feared”, given alarm spread by last Wednesday’s ADP employment data, but I think that we can now safely start to assume this is no longer a meaningful guide to Nonfarm Payrolls. US housing data continues to illustrate a recovery and the same theme is building up steam in Asia.
After last week’s losses we have definitely identified bargain hunting both in Asia and in the US. It should also be pointed out that this sort of correction – because that is all it is, not a slump or turnaround – is now an annual event and particularly around this time of year. Dig out the charts and you will see over the last few years, if you bought at this point of the cycle, you would end the year in handsome profit. While the US and Asia represent a broad brushstroke, it is less clear in Europe. Despite Hollande proclaiming at the weekend that the EU crisis was over (unclear how much Pastis he had consumed before this pronouncement), mainland Europe remains in the mire with Banks being the only sector that you might risk buying. At all counts avoid utilities.
The UK is a much more attractive proposition. Carney hits the ground running at the BofE this week and has already laid out a agenda of easing, but recent macro shows that it might now not be necessary and in any case he would have to convince the other member of the MPC, which would take a Herculean effort right now. But housing data (even away from the south east) is improving and GDP has seen the triple-dip recession avoided. With personal consumption set to rise, buying the UK is now the sensible European equities bet. Keep a close eye on what the government are doing with Lloyds and RBS…