Hotel California

After Friday's selloff, equities have started this week in much better fettle, as earnings and Greece continue to dominate the headlines. This is an important week for earnings as many US heavyweights report first quarter numbers. One such example was IBM on Monday, managing to beat expectations, admittedly after those expectations had been lowered ahead of the release. So far the picture has been a similar one to previous seasons, Factset reported that over 70% of companies are beating on earnings but less than 50% are beating on revenues. Analysts continually refer to concerns of peak margins; so far it looks like another quarter when Chief executives seem to be able to eke out further cost savings, managing to protect those margins. Not unsurprisingly Factset report outlook statements for the year ahead remain cautious, this should at least mean analysts expectations remain equally cautious.

The latest Merrill Lynch fund manager survey suggests that investors are once again moving away from the cyclical sectors and moving back in favour of the bond proxy sectors. This is despite, again according to Merrill that the defensives are trading at a premium to historical valuation averages, whilst cyclical stocks trade at a discount. Investors are equally cautious on UK equities trading on a relative basis close to lows against other developed indexes, as fund managers remain significantly underweight UK equities.

Tuesday saw the release of the monthly ZEW survey intended to reflect the current sentiment of Germany's investors and analysts. The survey overall came pretty much in line with expectations. Market Watch commented that within the report there was a sharper fall in economic expectations than had been expected, but the 238 respondents were happy with current conditions.

Greece continues to dominate ahead the meeting of euro group finance ministers on Friday. Mario Draghi raised the stakes this week by claiming Europe is now far better able to cope with a Grexit. That in itself, is probably true, but one feels it is more about the legacy effects, and will the euro be considered less of a monetary union and more of a fixed exchange rate mechanism should Greece leave. The euro was created in the image of Hotel California, you can check-in but you may never leave. It appears to be coming more accepted that Greece would eventually have to default on its debt obligations, but as yet its unsure whom they will default to. Will it be the IMF, or its own countrymen, either very unpalatable. 

Posted on April 21, 2015 .