On 12/5/11, Monday, futures are up overnight and the markets rally strongly at the open. At about 1:45 PM EST, the S&P announces that the European countries are put on warning for potential downgrades. Markets immediately drift lower giving up earlier gains. Gold drops 26 today. After the close, S&P says the ratings of 15 European nations are placed on a negative outlook. The E.U. Summit must produce tangible results or S&P will move ahead with downgrades. The only two nations not addressed by S&P (total of 17), are Cypress, already on negative watch, and Greece, in obvious stress already. The big surprise is the downgrade talk for Germany and France that have not seen a downgrade of their debt in decades.
On 12/6/11, Tuesday, France and Germany downplay the S&P news and say that it was politically motivated. Others question the timing of the S&P news release. European leaders are in discussions that say the ECB mandate of ‘monetary stability’, in a deflationary environment, means that Europe can act like the Fed in the U.S. did during the Lehman failure. This interpretation of the mandate would allow Europe to provide easy money policies more easily rather than having to amend treaties and laws. Remember that the Fed has a dual mandate, for price stability and employment, whereas the ECB only has the monetary stability mandate (to fight inflation as required). Australia cuts rates. Treasury Secretary Geithner is in Europe today meeting with leaders ahead of the E.U. Summit. The European leaders announce a new method of increasing leveraged fire power to help back stop Europe at 2 PM EST and the indexes pop higher.
On 12/7/11, Wednesday, Germany dampens hopes for a debt crisis solution as news from Berlin is increasingly pessimistic. The U.S. markets languish sideways for most of the day until a late day rally. This week’s action is flat as traders await the ECB rate decision tomorrow morning and the E.U. Summit results Friday morning.
On 12/8/11, Thursday, Mario Monti says “Europe and Italy are facing a crucial moment.” The ECB lowers rates by one-quarter point as expected but many did want a larger cut at 50 bips since the U.S. rates are near zero, while many think the U.S. economy is avoiding recession, but Europe is falling into recession with their rates higher than the U.S. During the press conference, ECB’s Draghi says “ECB is stepping back on bond buying.” He said that the rumor about using deflation as a reason to do an end around the ECB mandate is wrong. (Deflation is the reason that governments, such as the Fed in the U.S., steps in to perform quantitative easing (money printing).) Thus, by Draghi discounting deflationary fears, he slaps down the traders that were counting on the ECB to step in with an easy money policy. U.S. equity futures tumble lower on this news heading into the open.
On 12/8/11, a German official rejected items in a draft version of the communiqué from the E.U. Summit. Markets sold off strongly in the final half hour, major indexes dropping over 1% in the final minutes, the semiconductor sector tumbling into the close. The day ends with the SPX down 27 points, or 2.1%. The Dow Industrials fell 199 points, or 1.6%. The Nasdaq lost 53 points, or 2%. After the close, Texas Instruments says sales will be below expectations due to weaker demand for electronic components—looks like some traders knew that ahead of time selling the chips in the final minutes.
On 12/9/11, Friday, Korea slashes its 2012 GDP forecasts. China’s Shangahi Index, SSEC, closes at a 33 month low testing the critical 2300 level, where it must either bounce, or die. Platinum loses the 1500 level. Moody’s rating agency downgrades French banks especially negative on SocGen. Rumors say the ECB is buying Italian bonds, especially the 2-year, but the Italian 10-year yield continues upwards toward 7% again, the largest one-day move since November. Cameron (U.K.) opposes treaty changes. Merkel (Germany) wanted the treaty change so all 27 European nations would be on the same page. The E.U. Summit news will dominate today. News on a 200 billion euro addition to the IMF improved the mood and U.S. futures move upwards. Dupont cuts its outlook; chemicals are the building blocks of all recoveries.
On 12/9/11, traders view the E.U. Summit agreement of the 26 of 27 European Union nations, sans U.K., to forge a tighter union that includes strict fiscal rules, as a positive and the broad markets move upwards all day long. Semiconductors and copper regain bullishness as measured by Keybot the Quant, Keystone’s proprietary algorithm, so the markets enjoy a strong day with the SPX up 21 points, or 1.7%. The Dow Industrials finished the day up187 points, or 1.6%. The Nasdaq gained 50 points, or 1.9%. OPEC sees lower oil demand in the first half of 2012. India lowers its growth forecasts moving forward.
On 12/10/11, Saturday, a Full Moon and Eclipse occurs. China export and trade numbers were not as weak as forecasted.
……………………the saga continues…………..
Looking ahead to next week,
Continue watching the European bond market, especially Italy and France 10-year yields.
Eurozone problems continue. Italy and Spain remain the big worries. Global recovery is stalling. China bubble popping.
On 12/13/11, Retail Sales 8:30 AM; Business Inventories 10 AM; 10-Year Note Auction 1 PM
On 12/13/11, FOMC rate decision 2:15 PM; is QE mentioned?
On 12/14/11, Vienna OPEC Oil meeting; Oil Inventories 10:30 AM; 30-Year Bond Auction
On 12/15/11, Jobless Claims, PPI and Empire State 8:30 AM. Industiral Production 9:15 AM. Philly Fed 10 AM
On 12/26/11, markets are closed for the Christmas holiday
On 12/30/11, EOM, EOQ4, EOY2011.
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