Article / 09 February 2016 at 9:42 GMT

From the Floor: Finding opportunity in a sea of red

  • Stock markets in the red; investors waiting on the Fed
  • Financial sector carnage on the rise
  • ExxonMobil could snap up competitors' assets
  • Facebook, Vestas worth a look: Garnry

FtF



By Clemens Bomsdorf

What has just started is a "weak Yellen week", and the underlying mood is decidedly negative. “The market has now moved into total crisis mood,” says Saxo Bank CIO and chief economist Steen Jakobsen . 

Stocks are tumbling and tomorrow’s announcement by the Federal Reserve chair will once again be crucial for giving the market some direction. “I fully expect her to be dovish,” Jakobsen says, but adds that if she is not dovish enough, the market will have to test lower (1,600 for the ES1 index is the overall support while 1,831 is a smaller one).  

Jakobsen underlines that markets are in trouble despite the fact that marjkets are no longer pricing in three 2016 US rate hikes (the present consensus is for one) and the probability of a hike coming at the March meeting is now zero.

yellen























Another factor highlighting the seriousness of the crisis is the fact that financial institutions are performing badly with some banks in rather big trouble. Jakobsen refers to stories saying that there are now talks that even banks like Deutsche Bank might have difficulties fulfilling their debt obligations. 

“Deutsche is perfectly fine [in terms of its financial obligations], I am sure,” Jakobsen says, but some remain less confident in the bank's ability to meet its obligations. Peter Garnry, Saxo's head of equity strategysays the market is expecting Deutsche to raise new capital. 

European banks are now down more than 40% from their peak and their US counterparts are also underperforming, putting more pressure on Yellen to show dovishness. “We have to be very, very careful; it is risk-off until we see something changing the sentiment,” says Jakobsen. 

banks




















John J Hardy, head of FX strategy at Saxo Bank, adds that European Central Bank signals will add to the markets post-Fed direction. Today, however, the economic calendar is fairly empty with traders looking to the Fed's meeting (and the Swedish Riksbank meeting Thursday) for sentiment clues. 

Hardy is sceptical when it come to the upside potential of the EUR since lot of return is centered on Europe, and notes that USDJPY could retrace as well.  

Not only is the finance sector in rather bad shape, but the same goes for energy which has been performing poorly for some time. “It is quite obvious we are getting close to the end game in energy,” says Garnry, mentioning the case of Chesapeake Energy, the US' second-largest gas producer, which saw its market cap fall from $20.6 billion June 2014 to $1.3bn now . “There will be a lot of shake-ups,” Garnry says.

That, of course, comes with opportunities as well – at least for those investors and competitors who remain well-positioned. ExxonMobil, for example, is still doing very well and is one to keep an eye on when the consolidation wave begins, according to Garnry. It has a very diversified business, Garnry adds, maintains very little debt and is upping profits even at the current low price levels. 

In the longer term, Vestas is worth looking at. The Danish wind giant's shares have also been hit hard, but the firm's management have since came out with optimistic signals and it is “still a very interesting pick,” Garnry says. He also sees Facebook’s current share price of $100 as an interesting entry point.  

windturbine
Rough times ahead for the energy sector, but Danish 
wind turbine maker Vestas is worth a look. Photo: iStock

Clemens Bomsdorf is consulting editor at TradingFloor.com

Follow Saxo Squawk live throughout the day. Sign up here to keep abreast of all developments affecting your portfolios. 

Editor’s note: From the Floor takes advantage of TradingFloor.com's unique real-time access to Saxo Bank’s various trading desks around the globe to put our community in touch with the developments that matter to their portfolios 

Disclaimer

The Saxo Bank Group entities each provide execution-only service and access to Tradingfloor.com permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Tradingfloor.com and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Tradingfloor.com is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Tradingfloor.com or as a result of the use of the Tradingfloor.com. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. When trading through Tradingfloor.com your contracting Saxo Bank Group entity will be the counterparty to any trading entered into by you. Tradingfloor.com does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of ourtrading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws. Please read our disclaimers:
- Notification on Non-Independent Invetment Research
- Full disclaimer

Check your inbox for a mail from us to fully activate your profile. No mail? Have us re-send your verification mail