macroeconomics and it was another endless working week. Despite the fact that, according to rumors, 7 out of 17 participants of the last FOMC meeting have expressed reservations about further action by the Fed, the market is positioned for strong commitment by Ben Bernanke. Unfortunately, we believe that the symposium Bernanke will not say anything that will please the "bulls" on risk.While the media only talking about a second wave of recession, it is necessary to clarify one thing: in share prices at the moment is not considered a significant slowdown in growth, not to mention a second recession. In the short term upward correction may occur as a result of any positive news, such as yesterday's report on applications for unemployment benefits in the U.S.. A strong decrease in the estimates for U.S. GDP for the 2 nd quarter is already built into prices, and to really shake up the market will require data that are below even our own forecasts.
The U.S. Treasury Department held another successful auction this time, 7-year bonds worth about 29 billion dollars. They closed at a rate of 1.99% and the ratio of received and fulfilled orders amounted to 2.98.
According to the forecast, the U.S. GDP growth for the second quarter will be revised downwards to 1,2% (consensus forecast of 1,4%) with previous estimates 2,4%. The trade deficit in June increased more than expected, and business stores are replenished at a slower pace. The construction also declined, and in Taken together, these data suggest a possible major revision to 1.2%.
Data on applications for unemployment benefits were "better than expected, helping shares rise by a quarter per cent. Clearly, the situation deteriorates, if you fall to 473 thousand applications already causes an increase in the market. Nevertheless, the total number of applications continues to grow. Given the additional increase by $ 249 thousand, reaching nearly 10.6 million is 10.6 million applications for unemployment benefits received by every week! (Without correction, as an extraordinary and additional benefits are not adjusted for seasonality.) Risk that employment outside the agricultural private sector in August decline, growing every day.According to our macroeconomic scenario, stock prices will decline and the fact there is a simple reason. In the long run will be observed relationship between GDP growth and revenue growth and, given that the estimates for GDP significantly lowered, equity markets will also have to revise its forecasts for revenue growth. However, this dependence is not linear, since profits depend on two factors (at least): the volume of sales and margins. Growth in sales this year and early next year will be weak, but the opportunities to increase margins is, but not so large as previously expected. Thus, the projections for revenue growth to be revised with current estimates in 1989 dollars per share for S & P500 index up to 82-84 dollars per share. This will lead to a decrease in share prices.
In the short term, markets will continue to decline, and we expect that today Europe's stock markets will be opened in a minus on 0,2%. However, be aware that any positive news could trigger the rally, as markets eager favorable news. Volatility will remain high.
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