09 February 2016 at 9:42 GMT
- 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
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.
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 strategy, says 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.
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.
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
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