Week in Review: The Reapolitik of Debt

The S&P500 closed Friday near the top of its trading range and just a little more than 1 percent below its  post crash closing high of 1361.22 on the back of some decent earnings — and an Apple blowout — and the Greece debt restructuring news.   It’s clear they wanna buy this market but the macro keeps getting in the way.

We’re expecting a similar volatile trading week, though a bit more so around the high stakes U.S. debt talks.   It’s coming down to the wire and the chances of some real panic selling has increased, which, ironically, will light a fire under the arse of the politicos to get something done.   If 1300 can hold and a decent outcome is announced this week, it should be enough to take the S&P500 through the May 2nd 1370 intraday high with 1400 the next focus.   We’re not making big bets either way until the shape of a deal is more clear.

The CAC outperformed last week led by a relief rally in French financials, which were hit hard over fear of a sovereign default the prior few weeks.  The massive rally in Greek sovereign bonds after the restructuring announcement helped spark a huge rally in European financials.  We believe the Greece “Trichet Plan” is a big step in the right direction but many issues remain outstanding, including a more definitive resolution of Greece’s debt overhang.    We find today’s Welt am Sonntag article that German banks were ready to write off 50 percent of Greece’s debt but met resistance from the French banks very interesting.   We’ll have more on this later.

Keep an eye on the Shanghai Composite, which has pierced short-term support at 2,750 this morning.  The markets are not focused on China at the moment and a break of 2,610 will put the “credit bubble/bust”story back on the radar.

Gold and the dollar will be in the spotlight this week and we expect some decent volatility — gold price spike, then selling on the debt deal news.  No deal?  To the moon, Alice!  Buckle up, folks, this is as binary as it gets!

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