The upward reaction in the markets towards the first lines of resistance continues, while the Greek market, which started the “race” first, not only broke upwards the zone of 1,426-1,434 points but climbed to new 13-year highs and indeed with increased turnover.
Main fuels are corporate results and the receding geopolitical risk of an extended conflict in the Middle East, at least for the next few days.
The continuation of the upward movement will be judged by Thursday’s first data on the change in US first-quarter GDP and especially on Friday, when the PCE inflation index, which the Fed focuses on for its interest rate policy, will be published.
A serious deviation from the market estimate – that is, a reading above 2.8% from the market estimate of around 2.6% – could put a brake on the current reaction, despite the ‘green’ light from the geopolitical fronts.
Until Friday, however, investors are willing to focus on the good quarterly results of giants of the US economy such as General Motors, Lockheed Martin, GE Aerospace and Danaher (!), while in the coming days the baton will be taken by the big names of technology and the pharmaceutical industry.
Given the size of the capitalizations especially of the high-tech megacaps, it is understandable that the results should justify the high valuations and the guidance should breathe new life into the expectations.
And if the market is more or less prepared for Tesla’s results, there are high expectations to be verified for the results of Meta Platforms on Wednesday or Microsoft and Alphabet on Thursday.
At this point let us recall:
1. The Fed’s note in the April Financial Stability Report that valuations have risen further to levels that are in some cases high relative to fundamentals. Of course, he added that corporate balance sheets remained strong, the banking sector remained resilient and domestic bank liquidity remained abundant.
2. The pressures that the technology sector received last Friday, on the occasion of the news that the company Super Micro Computers did not give, as usual, preliminary guidance for the results that it is going to announce on the 30
April. Its stock fell 23.1% while NVIDIA’s stock lost 10% as Super Micro Computers is directly related to Nvidia since it is a supplier among others.
Nervousness was also extremely high in the communication services industry after Netflix’s results. Despite reporting earnings and sales that broadly confirmed Wall Street analysts’ forecasts, management’s cautiousness about the next quarter sent the stock down 9.1%. announced that it expects revenue of around $8.24 billion and earnings per share of $2.86, compared to analysts’ estimates of revenue of $8.47 billion and earnings of $3.05).
The example of the above two companies is indicative of how aggressively investors “empty” their positions if they are disappointed both by the results of the first quarter and by the expectations for the results of the second quarter.
As such, financial results announcements will remain in focus, being a big factor in determining the market’s pace, as around 180 companies representing more than 40% of the S&P 500’s market capitalization present their quarterly performance.
After all, we must not forget that the announcements of the quarterly results come in an environment of international instability both on the geopolitical front and on the macroeconomic front, with the US Central Bank indicating that it will not be in a hurry to cut interest rates if the inflation data do not follow the desired course.
Recall that the main expectation in January was for six rate cuts, while now the main expectation is that the Fed will cut rates once or twice by 25 basis points. In fact, there is no shortage of bets even for interest rate hike by the Fed, a prospect that was unthinkable until now.
According to the Financial Times, movements in the futures market suggest there is a 20% chance the Fed will raise interest rates in the next 12 monthswhich has hit the bond market with the yield on the 2-year US Treasury bond hitting an intraday high of 5% yesterday.
In conclusion, even if corporate results provide the fuel for the majority, it should continue
- progress in inflation
- the lull on the geopolitical fronts.
There are other headwinds
It is not only the course of inflation and geopolitical tensions that is troubling. Fiscal deficits are also a factor of concern.
The IMF reports in the Fiscal Monitor that it expects the US to record a budget deficit of 7.1% next year. This is more than three times the average of 2% of other developed economies.
He also expresses concern about the fiscal imbalances in the United Kingdom and Italy.
In terms of Chinese government debt, it is expected to record a deficit of 7.6% in 2025, more than double the 3.7% average of other emerging markets, due to still anemic demand and the housing crisis.
For the Fund, the US, China, the UK and Italy “are critical to take policy action to address fundamental imbalances between spending and revenue”.
With regard to the US and China in particular, it says that uncontrolled spending could have “huge implications for the global economy and pose significant risks to key fiscal projections in other economies”.
Yesterday, the rating agency Scope Ratings also expressed in a report the concern that if some eurozone governments do not implement coherent medium-term fiscal plans, then they will face pressures on their credit rating.
“We are concerned about highly indebted countries with large primary deficits and governments operating in highly fragmented political environments and struggling to implement reforms,” the head of sovereign ratings said.
But which country stands out because of the important reforms it has implemented? Greece.
The Greek stock market shines again
The Greek stock market yesterday, in another day of significant outperformance against the European boards and in the fifth bullish session in a row, climbed to 13-year highs, with increased trading levels.
From the support of 1,360 units, the General Index records a return of 6.4%, comfortably overcoming the resistance of the zone of 1,426-1,434 units, while the significant increase in turnover lends quality to the movement.
The Greek stock market was the first to signal the recent correction, but also the first in the upward reset, soon regaining the 90-day moving average.
The positive recommendation on the outlook of the Greek market from Standard & Poor’s or the comments on Greece’s reform work from Scope Ratings clearly played their part.
Just as important was the role of the surprise announcement from ELSTAT, for a primary surplus of around 1.9% of GDP at the end of 2023, or the Eurostat announcement according to which Greece achieved the second largest debt reduction as a percentage of GDP -10.8%- within the EU, after Portugal.
As we mentioned in Outlook 2024: “The Greek stock market in 2023 took the bronze medal on the world map of returns. In 2024 we expect it to remain in the golden trio.
Limited public financing needs and a competitive growth framework lead us to expect the country to continue to outperform the Eurozone in the year ahead… So it would not be an exaggeration to argue that as long as the economy outperforms economies of the Eurozone, it is logical for Greek assets to “move” and those with overperformance.
Let’s not forget that unlike most European countries, Greece is in a unique position as it can rely on support from the Recovery Fund, which is around 1.5% of GDP higher than in the rest of Southern Europe .
With an average cost of debt below the corresponding European levels and while the Greek government bonds will return to the international debt benchmarks from January 2024, our country has the opportunity to cover the capital expenditure gap in relation to the Eurozone average, while maintaining a steady path towards debt reduction.
The weight of the weighting remained this year at Mytileneos, Cenergy, OPAP, PPC MOH, YESTERDAYbut the Greek portfolio this year will have the opportunity to be enriched even with a smaller capitalization”.
Disclaimer
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