From fear to greed?

Today, publication of a stream of economic data, some bad, some not so bad:

• The PMI in the euro-zone continued to contract in April but at a slower pace (41.1 vs 38.3). In the UK the PMI for services also contracted at a lower pace (48.7 vs 45.5). In both cases it was better than expected. Retailing and manufacturing are however getting worse whilst business expectations are back in positive territory (54.4).
• House prices continued to fall in the UK (-17.7% in April from a year earlier)
• The employment report from ADP shows that US job losses would have shrunk to 491,000 from the 600,000+ we have been used to over the last couple of months.Let's see on Friday whether the official numbers match these.
• The Zillow U.S. home value report for 2009 Q1 shows they continued to slide for the ninth consecutive quarter, declining 14.2 percent from a year ago, and falling 21.8 percent since the market peak in 2006, but the pace is slowing down. Additionally, one-fifth (21.9%) of all homeowners in the United States is in negative equity, and one in five homes sold in the past 12 months was a foreclosure.
• Leaked information on the United States government’s stress tests of 19 major financial companies, lead to depict the situation as not so bad: a handful of banks will need to raise capital ($33.9 billion for BoA, $5-10 billion for Citi, either via new equity, converting existing preferred share -including Government preferred stock- or asset sales) and investors shrugged off concerns about the results of the so-called stress tests.
• The earnings season is coming to an end and was better than expected, particularly in the banking sector.
  

These numbers, like the ones of the earning season, are bad but not as bad as expected, hence the feel good sentiment for markets.

Psychologically, markets are moving from fear to greed. To me, it is an indication that they will correct in the coming weeks. This correction could be sharp, the economic, financial and social environment being still very unstable. Tomorrow's market reaction to details of banks stress-tests and Friday's non-farm payroll numbers will be interesting to follow and may trigger a correction if they are not up to expectations built during the past days and weeks.

Article of the day:

We can't subsidize the banks forever - Government has to show it can handle major insolvencies by Richardson and Roubini:
http://online.wsj.com/article/SB124147831175584985.html