View: Mid-term European index charts remain bearish, prefer US exposure
Equity markets have begun to look shaky again, the usual catalyst driving things namely the simmering Eurozone debt crisis with Spanish bonds pushing to yet higher ‘unsustainable’ levels while the Troika’s visit to Greece has rekindled Grexit chatter, a scenario where one should be thinking about ‘how’ rather than ‘if’. For the moment the moves in the main markets still look corrective within the broader up move we’ve seen since the start of June but support does look vulnerable. The fundamental story carries so many risks that expecting the market to be able to sidestep all of them is just hope. We also don’t subscribe to the view that equities are ‘cheap’ as the bulls continue to plug and that the macro backdrop is priced in, particularly with regard to the European bourses. The other bullish pillar of support is even more perverse from an investment perspective, the expectation of another injection of liquidity from those modern day alchemists the central banks, seemingly oblivious to the factors motivating these interventions. It might be kinder to say this demand is being driven by fear of missing out on the next rally, not that we’d expect one.
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