Markets may overreact, but bottom-line is plain vanilla

Expect plenty of macro data this week (data on U.S. housing market, IFO in Germany, the UK GDP 2T’14 and update macroeconomic IMF estimates), but will be relegated to second or third place.

The modest rebound in European stocks on Friday (NY made the European tone improve significantly throughout the session) after Thursday’s blow, the fact that volatility has not gone further (VIX 13%), the narrowing of Spanish and Italian differentials despite the appreciation of the Bund to new record highs and better than expected US corporate results make Bankinter analysts think we are not likely to see any change of market’s mood.

However, activity slowdown as we enter the central weeks of the summer could make certain assets (stock markets, bonds, currencies…) to overreact in the short-term.

But bottom-line looks different indeed: serenity of a lacking expansive cycle of inflationary risks, with business performance improving (US firms experiencing a second round of improvement; Europeans a first round) and the prospect that injections of the ECB (TLTROs) in September and December will bring a noticeable push to the economies.

In the primary market (bonds, IPOs…) the market is still digesting it all or almost all, while in the secondary market (stocks, corporate and sovereign bonds) price resistance is amazing, analysts at Bankinter weigh in.

Geostrategy is not likely to change any of this.