Since our MidSession Review has been published the market picture worsened: the Stoxx50 trades 1.13% down to 2,545.14, the German Dax falls 0.73% to 7,383.22, the Ftsemib slips 1.75% to 15,901.92 and the Spanish Ibex leads losers down 2.30% to 7,014.20. The picture in US isn’t brighter the DJIA falls 0.82% to 13,437.70, the S&P500 dips 0.70% to 1,447.18 and the Tech Nasdaq trades lower more than a percentage point to 3,040.96.
Let’s go in order:
- on one side of the Atlantic we have GE which slides 3 percent as third quarter revenue missed forecasts, we have McDonald, which slumps 3.1 percent as sales growth slowed at US stores; the disappointment sparkled by these two bells weather drove investors to dump their consumer discretionary stocks, a typical cyclical sector. (Cyclical stocks represent those items and services for consumers and businesses that they buy when confidence in the economy is high).
- On the other side of the Atlantic, Frau Merkel made clear that although the ECB will take responsibility for overseeing the euro zone banks from next year, that would not lead to the ESM rescue fund taking over member states’ liabilities such as Spain for past bank rescues. And if these words weighted on the short side of the market the knockout punch came from Mr Rajoy, who told reportes that “there hasn’t been any pressure, there have only been opinions..But opinions are one thing and decisions are another…This decision hasn’t yet been made.” As the EU summit comes to an end, the Spanish Dilemma is still there un-solved, and if someone was thinking that the road ahead in the European crisis was descendent now they should rethink about it.
The European knockout punch sent the common currency 0.30% lower versus the greenback to 1.3027$, as the US dollar gained more ground pressure mounted on dollar denominated commodities such as Gold and Oil. Gold for December delivery fell &19.80 to trade at $1,724.90 an ounce, November crude oil fell 49 cents, or 0.5%, to $91.59 a barrel on Nymex, near the day’s low of $91.48.
The market is asking for clarity, for unity of act and intent between European leaders, in all EU summit that we had there always have been a voice out of the chorus sparkling doubts in investors mind. The biggest doubt in circulation is: will the ECB be able to handle the structural problem related to the Spanish bond market?
According to UBS analysts: Spain will lose market access by next year. They say Spanish bonds have deep structural problems that the European Central Bank can’t fix: big issuance needs by the government, absent and not returning foreign buyers, and domestic banks which won’t be able to buy.
We do not know what will happen in the future, our job as traders is to trade “now”, we are not forecaster, we use all the informations that the market gives to us to build our trading hypothesis. We are market’s student first of all and this something that usually traders out there forget about.
Have a great weekend.