Cyclicals were again the big losers for the second week in a row, as investors continued to take their profits from the previous rally. Mining and energy got hurt when the Chinese government lowered its growth target to 7.5% to control inflation, lowering overall global growth expectations for 2012. China reported its biggest trading deficit in 22 years with a USD 32bn outflow, affected by the slowdown in Europe. Not is all bad news, as the US continues its better-than-expected increase in employment numbers, which again surprised on the upside. This bodes negatively for investors looking for QE3 out of the US. The US still faces an uphill battle, as Q1 GDP growth is expected to be around 1%.
The Madrid stock exchange was the worst performer during the week. As the Greek solution is slowly put in place, focus will now will start to shift towards the Iberian Peninsula, with Spain and Italy being the being the biggest losers last week which might foreshadow more things to come. The ISDA declared Greece’s debt swap as a ‘default event’, but the low amount -USD3bn of CDS contract - should not greatly affect the banking sector.
Earnings from Intesa Sanpaolo will probably take some negative headlines, while VW and BMW might be positive for the market.