SocGen Doubts Stocks Will Survive These Looming Problems

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Societe Generale’s Michaela Marcussen spots several tests for equity confidence in the coming week.Marcussen writes: “On the headlines, we expect to see good news. Looking at what lurks below the surface, however, we share the caution of bond markets with the improvement in economic fundamentals driven mainly by temporary factors and new tough tests on Europe’s resolve ahead.”

Here are the tests:

1) Everyone expects a deal on Greek private sector involvement. BUT: “This is still a far cry from sustainable levels and official sector hopes of seeing Greece return to funding markets within a few years are likely to be thwarted by ‘once bitten, twice shy’ investors.”

2) Recent headlines suggest more funds for a euro rescue. BUT: “We’ve been here before and, however the equation is twisted and turned, the end outcome is that higher commitment from the euro area member states to the EFSF/ESM is required.

3) Europe’s leaders are announcing new plans for growth. BUT: “While encouraging, our concern is that measures to boost growth will prove insufficient and that the drag on growth from austerity measures will remain substantial.”

4) People expect hints of easing from the FOMC meeting. BUT: “While the Fed’s monetary policy strategy is clearly one that markets will feel confident about, fiscal policy is a different story… Our base case remains that the fiscal drag in 2013 will clock in at around 1.3%; the risk is that it could be as high as 2.0%.”

5) The market expects improvement in business confidence. BUT: “Much of the tick-up in confidence has come from the US. To our minds, however, much of this has been driven by temporary factors that we expect soon to fade.”

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