Yes, fund managers are hoping the worst is over. They still have way too optimistic earnings estimates. [/B][/QUOTE] The best start for European stocks in at least two decades will give way to losses as slumping corporate profits send equities to new lows, the biggest securities firms say. The Dow Jones Stoxx 600 Indexâs 7.3 percent surge in 2009 through yesterday was part of a so-called bear-market rally that will end as earnings deteriorate, according to Morgan Stanley and Merrill Lynch & Co. Profits at European companies will tumble 20 percent this year, Goldman Sachs Group Inc. says. The Stoxx 600 rebounded 17 percent since Nov. 21 on speculation U.S. President-elect Barack Obama will revive the worldâs biggest economy with $775 billion of tax cuts and spending as the European Central Bank and the Bank of England lower interest rates to combat the biggest financial crisis since the Great Depression. Stocks gained even after data showed manufacturing and service industries in Europe are contracting at the fastest pace since data began in 1998. âThis is a bear-market rally, it is a chance to sell rather than to buy,â said Teun Draaisma, the London-based head of European equity strategy at Morgan Stanley. âThe fundamentals are in big trouble with the economy.â Morgan Stanley, ranked second by Europe-based investors in last yearâs Thomson Extel survey for global-equity strategy, says stock prices donât yet reflect the drop in earnings. The rally pushed the Stoxx 600âs valuation to 9.8 times the profits of its companies, compared with a ratio of 7.9 on Oct. 27.
I have such a huge spread here in 5100 March calls like 262/268. Is that normal ? What advantage do you see in buying those calls against simply longing Fdax ?
MM spread is normal. Fair price is somewhere between, but attention !Do your own calculation of fair option prices. Black & Scholes might help you. If you follow my hedging strategies, you will understand the 5100 call. We approached the upper band of my FDAX target.
Equities have bounced but the risk of a setback is high if the economic news worsens again and deflation fears resurface. We would avoid cyclical indices such as the DAX and MDAX. In addition financial conditions have tightened in the Eurozone in the last six months, whereas in the UK and Sweden conditions have loosened - we prefer FTSE 100 and OMX. Financial conditions in the Eurozone have tightened by more than 200 bp, owing to a combination of higher spreads, weaker equity prices and the rise in the euro. All our Underweights are in Eurozone indices (DAX, MDAX, IBEX and MIB) whereas the UK and Sweden should benefit from looser financial conditions. We are Overweight the FTSE 100 and OMX.
Commerzbank AG will get its second state bailout in less than three months and hand a stake to the German government after the financial crisis deepened. Germanyâs second-largest bank will receive 10 billion euros ($13.7 billion) of capital from the government, which will take a stake of 25 percent plus one share, the Frankfurt-based lender said in a statement today. Commerzbank already tapped the state for 8.2 billion euros last November. Banks from UBS AG in Zurich to New York-based Citigroup Inc. were forced into government rescues after the September bankruptcy of Lehman Brothers Holdings Inc. froze credit markets. Commerzbank Chief Executive Officer Martin Blessing is seeking additional funds as the bank nears the completion of its takeover of Dresdner Bank from insurer Allianz SE. Oppss...what a surprise...