"The cost of austerity led to an electoral rebellion..."
-Enrico Letta - Deputy Head of the Democratic Party
"Throw the Bastards Out!"
- Italian electorate
The unexpected turn around in the Italian elections provided the reason for investors around the world to take some money off the table.....leading to a technical sell off - one that we have been discussing for a month now.....as noted - the mkts have been due for a correction of sorts and the very thought of Silvio Berlusconi rising to power yet again causing major Eurozone (and Italian) chaos was enough for traders to bail....
For months now - it appeared that the US investors were not so concerned about what was going on in the Eurozone - the tension had eased, yes - the region is recession - but the very worst of the financial crisis seemed to be behind us....yet - yesterday's swift and potentially violent reaction to the "will of the people" just goes to the nervousness still simmering below the surface......
Any upheaval in Italy can easily spread across the region - which is the concern for any of the creditor nations - Germany for example - has demanded that those financially strapped Eurozone nations - Italy, France, Spain, Greece, Portugal etc... overhaul their fiscal policies, initiate austerity programs, (cut spending) and raise taxes in exchange for ECB support...any perceived rejection of this plan in Italy could easily spread across the sister nations - causing another round of contagion and fear that brought those credit mkts to a screeching halt and caused global financial disruption.....
Yesterday morning - mkts were rocking higher on the expectation that a center left gov't would be elected and current policies would be supported - yet once that picture changed - the mkt needed to re-price the risk and so it did........With the Eurozone closing down substantially - selling begets selling as traders try to lock in profits......Next was the Obama/Boehner catfight on TV over coming sequestration in this country.....so no matter what happens traders remain on edge.... The speed at which the mkts react and the inability for algos to understand the nuances of the news continues to cause volatility and opportunity. We hit 5 yr highs last week....and lost a month's gains in one afternoon...the VIX soared 35% yesterday supporting the argument that there was way too much complacency in the mkts for this rally to hold.....
1490 is a level to watch.....we closed just below it last night yet this morning futures +3, are rallying back to this level....Can it hold? If not - then look for the 50 DMA of 1476 to be the next support level.......and should the mkts react really negatively to sequestration then we could potentially retrace back to the 200 DMA of 1410. This level would wipe out all of the ytd gains.
Today we get Uncle Benny giving the first half of the semiannual Humphrey Hawkins Testimony.....This is a bi annual report by the chairman to first the Senate and then the House - outlining goals and plans in place by the Fed in relation to the current monetary policies in place. Traders try to forecast (guess) what he will say....hmmmm...considering Europe is on fire, Asia struggling and the potential for another US recession - does anyone really think he is taking the punch bowl away? Are rates really going to start to move higher now? As Bloomberg points out - the Fed could see over a half Trillion $'s of paper losses if interest rates begin to rise right now.....Not happening....
Overnight in Asia - the story continues......Asian mkts moved lower led by Japan - down some 2% as fears of a new Eurozone crisis brew - this uncertainty has now re-ignited the underlying fear - especially after weeks of advances and risk on due to continued monetary stimulus. Japanese investors move out of equities into the Yen causing the Yen to strengthen and equities to weaken. Japan - 2%, Hong Kong -1.3%, China - 1.4% and ASX -1%.
In Europe -.as you can imagine - mkts under pressure - across the board we are seeing losses of 2+%. - financials getting clobbered....as Italian political deadlock grips the region......Italian banks trading down 7 - 10%, 10 yr bond ylds rose to 4.8%.... FTSE -1.2%, CAC 40 -2.2%, DAX -1.8%, EUROSTOXX -2.5%, SPAIN -2.7% and ITALY -4.7%.
In the US - futures are +3 trading at 1490....this is an important level for the mkt. This takes us back to late January/early February and is a place where the mkt should find some support......The mkt will continue to watch trading and sentiment in Europe but will also be focused on DC and the Testimony by Bernanke today. Any sense of concern and expect the sellers to get anxious creating an opportunity for the longer term investor as he holds the cards - no reason to rush out and buy - patience is a virtue - slow and steady wins the race.....
-Enrico Letta - Deputy Head of the Democratic Party
"Throw the Bastards Out!"
- Italian electorate
The unexpected turn around in the Italian elections provided the reason for investors around the world to take some money off the table.....leading to a technical sell off - one that we have been discussing for a month now.....as noted - the mkts have been due for a correction of sorts and the very thought of Silvio Berlusconi rising to power yet again causing major Eurozone (and Italian) chaos was enough for traders to bail....
For months now - it appeared that the US investors were not so concerned about what was going on in the Eurozone - the tension had eased, yes - the region is recession - but the very worst of the financial crisis seemed to be behind us....yet - yesterday's swift and potentially violent reaction to the "will of the people" just goes to the nervousness still simmering below the surface......
Any upheaval in Italy can easily spread across the region - which is the concern for any of the creditor nations - Germany for example - has demanded that those financially strapped Eurozone nations - Italy, France, Spain, Greece, Portugal etc... overhaul their fiscal policies, initiate austerity programs, (cut spending) and raise taxes in exchange for ECB support...any perceived rejection of this plan in Italy could easily spread across the sister nations - causing another round of contagion and fear that brought those credit mkts to a screeching halt and caused global financial disruption.....
Yesterday morning - mkts were rocking higher on the expectation that a center left gov't would be elected and current policies would be supported - yet once that picture changed - the mkt needed to re-price the risk and so it did........With the Eurozone closing down substantially - selling begets selling as traders try to lock in profits......Next was the Obama/Boehner catfight on TV over coming sequestration in this country.....so no matter what happens traders remain on edge.... The speed at which the mkts react and the inability for algos to understand the nuances of the news continues to cause volatility and opportunity. We hit 5 yr highs last week....and lost a month's gains in one afternoon...the VIX soared 35% yesterday supporting the argument that there was way too much complacency in the mkts for this rally to hold.....
1490 is a level to watch.....we closed just below it last night yet this morning futures +3, are rallying back to this level....Can it hold? If not - then look for the 50 DMA of 1476 to be the next support level.......and should the mkts react really negatively to sequestration then we could potentially retrace back to the 200 DMA of 1410. This level would wipe out all of the ytd gains.
Today we get Uncle Benny giving the first half of the semiannual Humphrey Hawkins Testimony.....This is a bi annual report by the chairman to first the Senate and then the House - outlining goals and plans in place by the Fed in relation to the current monetary policies in place. Traders try to forecast (guess) what he will say....hmmmm...considering Europe is on fire, Asia struggling and the potential for another US recession - does anyone really think he is taking the punch bowl away? Are rates really going to start to move higher now? As Bloomberg points out - the Fed could see over a half Trillion $'s of paper losses if interest rates begin to rise right now.....Not happening....
Overnight in Asia - the story continues......Asian mkts moved lower led by Japan - down some 2% as fears of a new Eurozone crisis brew - this uncertainty has now re-ignited the underlying fear - especially after weeks of advances and risk on due to continued monetary stimulus. Japanese investors move out of equities into the Yen causing the Yen to strengthen and equities to weaken. Japan - 2%, Hong Kong -1.3%, China - 1.4% and ASX -1%.
In Europe -.as you can imagine - mkts under pressure - across the board we are seeing losses of 2+%. - financials getting clobbered....as Italian political deadlock grips the region......Italian banks trading down 7 - 10%, 10 yr bond ylds rose to 4.8%.... FTSE -1.2%, CAC 40 -2.2%, DAX -1.8%, EUROSTOXX -2.5%, SPAIN -2.7% and ITALY -4.7%.
In the US - futures are +3 trading at 1490....this is an important level for the mkt. This takes us back to late January/early February and is a place where the mkt should find some support......The mkt will continue to watch trading and sentiment in Europe but will also be focused on DC and the Testimony by Bernanke today. Any sense of concern and expect the sellers to get anxious creating an opportunity for the longer term investor as he holds the cards - no reason to rush out and buy - patience is a virtue - slow and steady wins the race.....
