| Investment Views (March 22nd 1999) |
Dow flirted with 10000 three times last week but failed to close above
it. Friday
was tripple witching (i.e. the expiration of index futures and index
options). Index
futures and options expirations induce a lot of purely technical trading.
The volume
is usually enormous. It is usually quite difficult to read any
underlying trends
from the action on expiration days. We shall therefore wait a
few days
to see whether the market will start a correction or it will take another
stab at the 10000 level. We still have the feeling that the correction,
if
any, should take us to around 9800 at most. As we have written
last week,
we do not see any serious bear market until the Fed decides to raise
the interest
rates in earnest. But a 5-7% correction would be a healthy reaction
to an
overshooting market.
Thanks to Oskar Lafontaine and the rallying Dow, the technical conditions
of the
German stock market improved quite remarkably. On Friday it closed
above
5100 level which is a significant resistence level. But everything
depends on
Wall Street. If the Dow does not correct significantly, we should
probably
see a higher Dax in Frankfurt.
The SMI of Switzerland was very weak last week. Despite of the
Dow
making new closing highs, the SMI did not even manage to close above
7240 not mentioning 7350. Although the short term Stochastics
has
improved by Thursday and we have the 20 days moving average crossing
above the 50 days moving average decisively, we did not see a rally
on
Friday. The market moved to about 7290 before closing down around
7200. It was a dismal performance. But Friday being options
and futures
expirations, we shall still give the market some benefit of doubt and
will
watch and see whether it will manage to close above 7350 decisively.
But with the Dow showing weakness on Friday, we shall not expect
great movements in Zürich.
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Thanks to Oskar Lafontaine's resignation, Veba share price managed to
recover
to above 80 SFranks. But because Veba sold their Cable and Wireless
stock holdings at below the market price of around 8.50 pounds, C&W
share
price has suffered. We're still quite bullish for C&W, because
the Hong Kong
market and economy are recovering. We recommend buying more C&W
on the dip.
The dollar has strengthend since mid-January. There are some arguments
in favor
of a strong dollar. The Japanese economy doesn't seem to be able
to recover on its
own. It needs to export out of its mess. Second:
the US is the only major economy
with a government budget surplus. The virtuous cycle has some
time to run. Third:
the European economy is weakening. The ECB will have to cut the
interest rates
after they have demonstrated their political independence for a few
more months.
Otherwise they risk helping the global deflationary spiral to
accelerate. The monetary
policy of the ECB is too tight for Germany and France. Both countries
are slowing
down rapidly. A decisive push to reflate is necessary.
The US treasury bonds have been quite volatile. Yields have risen
to 5.75 before
falling back on the employment data on Friday. There were more
jobs created
than the consensus expectation. But wages have been very tame.
We see the
situation as a confirmation for our long held view that the US unemployment
had
been consistently under reported. The labor market is not as
tight as the official
numbers suggest. Positive as the job creation figures were.
The consumers
in the US are piling on debts faster than their salaries increases.
We must hope
and pray that the ECB will lower the interest rates soon, so that the
US
will no longer be the only consumers sustaining the world trade.
Oskar Lafonaine's resignation and the resignation of the entire EU-Commission
have
not managed to knock the euro down more than about a cent. The
Euro is back
at the 1.09 level after falling briefly. We think that the dollar
has probably seen its
highs against the Euro. Unless the ECB lowers the interest rates
substantially we
should not see the Euro weakening to more than 1.05. The US-dollar
has risen
about three time to SFr. 1.4750 before falling back. It can't
seem to rise above
1.47. But it didn't fall back for long either. 1.44 seems
to offer good support.
We should see further test of 1.47.
| *The stock prices are provided for informational puruposes only and not intended for trading purposes. The opinions expressed in these pages are what they are: opinions! |
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