31 Jan 2012: My take on Global-Macro patterns + Santander profits fall 35%

FTSE 100 5713 Up 75bp
S&P 500 1313 Down 25bp
NIFTY 50 India 5199 Up 220bp

My 2-cents on Global-Macro patterns: Greece’s position looks a bit precarious- while it’ll be in the best interests of Eurozone, specially Germany and France that Greece is bailed out to maintain integrity of the Euro, a lack of initiative on behalf of Greece might just cause breakdown of bailout negotiations causing Greece to default which will cause Euro to be devalued; on the other hand, should an agreement be reached, all the extra bailout money will erode the value of the Euro (against Dollar) anyways; my key tip here is going short on Euro; I can’t promise a time-frame at this point, but Euro short at this point is good for a 3-5% gain within 2-3 months. Secondly, with the massive influx of wheat from Russia, it is wise to go long on wheat; specially with summer months approaching when wheat supply-lines will be stretched, and given the current price which is well below-par, this looks like a solid trade. Gold seems at an inflection right now; while I am tempted to say going short on Gold might be promising as Gold is trading at highs and I expect long-term mean reversion, it might be a long-term trade to get into. In other commonly traded commodities, Iran keeps the world guessing about Crude Oil; I am inclined to say Oil seems slightly over-valued at this point owing to an expected shortage; Crude Oil short  might be a decent opportunity, but with the prevailing uncertainty at this point, it’s a trade I wouldn’t get into. In terms of debt, US 10-year has returned to the right shape; US expects good growth this coming year, and I would invest in this debt instrument for safe-keeping as the yields might drop later this year owing to its exclusiveness as a safe-enough debt investment.


Major Stories

  • Banks set to double crisis loans from ECB
    • European Banks are preparing to tap in ECB’s emergency funding scheme for upto twice as much as ECB provided in its debut (Euro 498bn)
    • Several banks have indicated that they will double or triple their requests at ECB’s auction in February
    • Many banks are expected to participate in the February auction which will help diversify the sources of credit for ECB
    • RBS has also tapped into the scheme, providing Euro 5bn of liquidity
  • 25 Euro nations agree to German fiscal treaty
    • 25 of the 27 Euro nations have agreed to sign the German treaty for tougher fiscal rules to support the Euro
    • Sarkozy has warned, though, that Germany’s proposal for the EU to ‘control’ Greece’s austerity measures would not be very democratic, and that Greece would have to implement everything by itself; Sarkozy also mentioned that Merkel agreed with him on this
  • Santander profits fall 35%
    • Santander’s profits have fallen 35% owing to real-estate market collapse in Spain, and the Eurozone problems
    • Q4 results are very poor showing profit of $47mn, as compared to $2bn in 2010 Q4
    • Major part of Santander’s profits have come from South-America

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