Into the trading week, (02-04)

As the new Quarter begins, the only recap/flashback to Q1 needed is we’ve been ‘tactically long'  U.S equities for 150 SP handles  from premarket Jan 3rd on Global PMI’s right through to end of March, despite the negative tone arising out of China/European markets last few weeks.  While most will be consumed with the wild Q1 figures this weekend ie. BKX >25%, NASD >18%, VIX <30%, AAPL >45%, BAC>70% and so on, the only concern here is looking ahead, “Into the trading week”.  

So off we go….

Mid- week, Europe crept back up with noise about Spain (budget), extensions of EFSF/ESM firewalls.  Both of these turned out to be disappointments (Friday) falling short of expectations, yet market ignored and hardly a word was said on the subject after being a main topic all week.  Preference here was to ignore 'Spain' noise all week, both events turned out to be a non-events.  World can’t live without an EU crisis it seems and now the calls for its return have started with Spain.  In this view, am not going to worry until/if those 10yr yields say so.  So far, they have a widened just a tad.

China is now a growth scare as sentiment has turned to a hard landing occurring with resources, commodities taking a beating seemingly 1 day/per week on some related headline.  Again, just like with peripheral 10yr yields watch in Europe, show me a China 1H GDP less than 7% first before considering any cautionary stance on equities as a whole.  Even, that (GDP under 7%) playing out is not a given cautionary on equities.  This goes back to the premise “…commodity led pullback/correction, but not necessarily an equity one’.  For now, staying away from commodity linked equities as the case through March is enough of a security blanket.

Yes, China and Europe are viable and possible ‘red flags’ for a correction, but no more of a red flag than what the Q1 rally is now into Q2. The magnitude of the rally into a fresh Q2 is now a profit taking pullback/correction possibility that is just as viable at some point in Q2.  This (correction idea) stems from those who’ve missed the rally or just the typical Bear calling out for a repeat of 2011 Q1 –Q2 playing out.

U.S markets are heading into a long weekend ahead of earnings season.  These 4 days we’ll watch for pre-announcements b/c there is really nothing else on the corporate end.  The big Global eco’ data due to this week, particularly PMI’s are not so big anymore since Flash PMI’s in China (btw,Shang’ closed 02 thru 04) and the core European countries (Germany, France) disappointed.  If anything, there is upside market risk on better than expected figures coming out.  Here, the NFP# will be announced during market closure on Friday, the number here has tapered off a bit as well from recent numbers, but still expected to be ~215K.

All in, the quiet and conviction less market we’ve seen for a few weeks may continue this week, especially since NFP# can’t be traded until the 9th of April.

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Update: China PMI improved to 53.1 vs. 51(Feb.), consensus was 50.8. Increase to 54.3 in large enterprise PMI boosted this gov't number. The Bears will point to HSBC Markit # (smaller enterprises), which fell to 48.3 from 49.6.  This won't lift fog or resolve the near term growth scare outlook.