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Are Markets Poised for a Rebound?

Published 01/09/2023, 08:52 AM
Updated 05/27/2024, 01:10 PM

EU and the US are mixed at the beginning of 2023. The EU Futures are performing well, but the US Futures are weak.

In France, EU harmonized inflation unexpectedly slowed down in December; the increase was 6.7% year on year, from +7.1% in November, and the consensus was +7.3%.

Consumer prices in Germany also fell more than expected.

Based on the data released so far, and given the consensus on what is yet to come out, Eurozone inflation, due out on Friday, is expected to slow to 9.1%.

However, in January, a new rise is likely linked to the disappearance of government measures introduced by some countries to combat expensive fuel.

The situation is similar in the US, but with two major differences. Inflation is falling less quickly in the US, and the FED is more aggressive regarding rate hikes than the ECB.

Nasdaq 100 Futures, S&P 500 Futures, DAX Futures, FTSE MIB, IBEX 35: As written in previous articles, the indices have exhausted their strength and are starting to go down.

The recession that will lead to a fat decline in earnings is not yet discounted by the markets.

This means there is room to fall even if, in the short term, the Chinese move to loosen the containment rules could support the indices.

However, I expect a recession in the US and the EU; in these cases, markets always anticipate a recession three months in advance.

In January, we will see the real market collapse, and the increases must not fool us at the beginning of the week.

EU indices will hold much better than the US, as the ECB is proving more accommodative than the Fed.

Furthermore, high inflation in the EU is destined to collapse quickly, thanks to the fall in gas prices, which will be good for the EU.

So it will be the American indices that collapse, with the EU indices holding up much better.

The ideal instrument in these cases is the VIX, also known as the fear index, which uses options on the S&P 500 index as underlying, with which it has a negative correlation: if the S&P 500 goes up, the VIX goes down and vice versa.

Natural gas: As predicted in previous articles, the gas crash has arrived. There is a clear difference between the short run and the long run right now.

In the long run, the situation is interesting. Europe will need even more LNG to replace Russian volumes next summer as the continent reloads storage. Chinese demand is recovering from lockdowns and offsetting lower imports from other Asian buyers.

In the short term, the situation is negative.

The European danger has vanished, with stocks in the EU full thanks to very low demand for gas due to both industrial and retail savings and the energy transaction underway.

In summer, however, the situation could be different, with difficulty filling the stocks.

In the US, demand is low due to the weather, this is creating a very negative internal excess supply for prices which adds to the doubts regarding the reopening of some export plants, which have been offline for some time and which contribute to the oversupply.

In Area 4, however, I expect a technical rebound from the gas, with a target of 5, should help arrive from the weather.

Crude Oil: Negative start of 2023 for oil prices due to concern about covid infections in China. While prices will suffer in the short term, the situation is positive in the long term for two reasons.

  1. The price cap, although not penalizing for Russia, could lead to an increase in demand for American oil that is very positive for prices and a collapse in Russian oil production.
  2. Chinese demand for oil held back by Covid will restart in 2023, and we have the easing of restrictions at the end of 2022 to support

All this is combined with the fact that oil stocks are at their lowest in 20 years, with countries like Russia reporting sharply declining production, a factor that is good for prices as there is a shortage of oil.

I remain positive over the long term with an $85 target. Tesla (NASDAQ:TSLA): The bad period for the stock is destined to continue.

Sales disappointed, with below-expected fourth-quarter deliveries of 405,278 cars, less than the 420,760 units analysts were betting on.

There are problems in China, with lower prices, due to weakening demand which means lower margins, and competition in Europe with Stellantis (NYSE:STLA) increasingly threatening.

Also increasing the distractions of the founder, Musk is increasingly distracted by Twitter.

The statements of CEO Musk, who says he will leave the post of CEO Twitter once a replacement has been found, were of no use.

Banco Santander (BME:SAN): The leading Spanish banking group is the best positioned in Europe in terms of prices.

Generally, banks are favored by rate hikes, and we know the ECB will raise rates further at upcoming meetings.

Analyzing the stock, I am struck by the very high margins, and comparing this bank with the other competitors using the multiples method, it can be seen that the stock is at a discount.

According to my model, the title is worth 4 EUR. My open positions: Yesterday, I opened a Buy position on Natural gas, and in the previous week, I opened a buy position on VIX.

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