What happened to the Raging Bull?
What was supposed to be a calm bull market turned into something else. News out of Europe has once again killed the Bull sentiment. With many asset managers looking to finish this year asap, next week will probably give more opportunities with further volatility.
Enjoy the long weekend.
The sovereign debt crisis and the future of European integration
Reading for those who still believe there will be a Euro currency. There are some issues to be dealt with. From Paramo’s speech in Oxford today.
The sovereign debt crisis will be the theme of my remarks today. I do not want to engage in the minutiae of the issue or signal any particular policy stance by the ECB. Instead, I would like to take a step back from the crisis and reflect on what it has taught us so far about economic and monetary union in Europe. Obviously, I concentrate explicitly on the euro area, i.e. the seventeen countries sharing the single currency. The status and role of the United Kingdom, the dynamics of the British domestic debate on Europe, and the cooperation with the Continent in addressing the crisis are not the focus of my remarks.
I have three main propositions.
Is Europe lost to Politicians?
Are the citizens of Europe losing Europe to the Politicians? Spiegels take on the subject;
“Something is going to go ‘bang’ soon,” fears Alexander Graf Lambsdorff, 45, a member of the European Parliament for Germany’s business-friendly Free Democratic Party (FDP). Then the lights will go out in Brussels.
The power outage would be the consequence of a serious breakdown in European democracy, a downing of the power lines connecting Brussels and Europe’s citizens. If Brussels no longer had the confidence of citizens, or what the Treaty on European Union refers to as the “peoples of Europe,” the European Parliament, Council and Commission would be operating without the basis of legitimacy. The idea of peace, freedom and prosperity would be out of juice.
Chart Levels as Merkonty Rulezzzz the Market
While the HFT news machines scan for the latest Merkonty flashes, below some chart levels by Macro Story.
SPX
Another pattern has failed to the downside. First it was the wedge everyone was watching now the flag pattern. Something else to point out is notice on the chart where we are today versus in early August when the market sold off hard.
This is a perfect example of why you need to let a trade run even though the technicals may say remove it. If we are witnessing a global asset liquidation then this market can stay oversold. We’ve been conditioned though the past few months to cover before profits vaporize.
Merkonty kills the bull party as bunds lose their “sex appeal”
Markets are once again under siege by the political elite of Europe. This “calm” week is soon turning out to be the one of the wildest weeks of the year. After the fiasco bond auction out of Germany yesterday, markets tried rallying this morning, but as a clock work, the politicians once again kill the false bull. One shouldn’t be surprised though, as the leaders have absolutely no clue what to do about the failed euro project. At least they know one thing, they know what they don’t want. They don’t want Eurobonds, nor the leveraged EFSF, nor Unity….From Bloomberg;
German Chancellor Angela Merkel again ruled out joint euro-area borrowing and an expanded role for the European Central Bank in fighting the debt crisis.
Euro bonds are “not needed and not appropriate,” Merkel said today at a press conference with Italian Prime Minister Mario Monti and French President Nicolas Sarkozy in Strasbourg, France. She said euro bonds would “level the difference” in euro-region interest rates. “It would be a completely wrong signal to ignore those diverging interest rates because they’re an indicator of where work still needs to be done.”
Time to cover (some) of the Shorts
Markets have been rather volatile this “calm” week. With the US traders on Thanksgiving holiday, only the juniors will be trading the European markets. With extremely thin volumes, we won’t consider the moves statistically significant. As we have reached some short term support levels, it is time to take some of the short positions off the table. Ten days ago we suggested the market was about to fall hard as we wrote;
Note how the SPX managed to touch the 200 day average briefly on this last run. At the same time, the SPX index has developed another dynamic formation, that could easily take this lower. Compare to the other “top”. The DAX is trapped in the negative trend, and a breach of the support levels, slightly lower, will cause another “flashy” move to the downside. With lack of volume, all moves will be magnified by the HFT. These guys are not closing the books because Christmas is coming up…(full post here)
Fitch joins Dagong and Downgrades Portugal to Junk
Once again, Dagong is pulling the trigger before the rest of the agencies join. Now Fitch joins. From Reuters;
Fitch Ratings has downgraded Portugal’s Long term foreign and local currency Issuer Default Ratings (IDR) to ‘BB+’ from ‘BBB-’ and Short-term IDR to ‘B’ from ‘F3′. The Rating Watch Negative (RWN) on the long-and short-term ratings has been removed. The Outlook is Negative. The agency has also affirmed its Country Ceiling at ‘AAA’. Fitch has also downgraded Portugal’s senior unsecured debt to ‘BB+’ and commercial paper to ‘B’, and removed both from RWN.
Fitch has concluded its fourth-quarter review of Portugal’s sovereign rating, resolving the RWN in place since April 2011. The country’s large fiscal imbalances, high indebtedness across all sectors, and adverse macroeconomic outlook mean the sovereign’s credit profile is no longer consistent with an investment-grade rating.
Fitch has lowered Portugal’s growth forecasts in light of the worsened European outlook. The agency now expects GDP to contract by 3% in 2012. Significant structural reforms expected under the programme should leave Portugal in a more competitive position in the long term.
Geopolitical Space Heating Up
While the HFT Algos are busy lifting the market from the bad levels we closed at yesterday, the geopolitical space is really heating up. Syria is once again boiling, and several countries are out warning of “bombing Syria to peace”. Will we get another well timed conflict, all in order to hide the economic problems?
From Al Jazeera;
Activists say at least 41 people have been killed across Syria over the past 24 hours, amid warning by Turkey that President Bashar al-Assad’s crackdown on dissent threatened to “drag the whole region into turmoil and bloodshed”.
The Local Co-ordinating Committees activist network said that at least nine people were killed in Syria on Wednesday, including a child. Of those killed, three died in the central city of Hama and two in the suburbs of Damascus.
The UN says that more than 3,500 people, most of them civilians, have been killed since the protests first broke out in Syria in March.
The deaths were reported as Abdullah Gul, the Turkish president, during a speech during a state visit to Britain on Wednesday, accused ”the Baath regime continues to use oppression and violence on its own people”.
“Violence breeds violence. Unfortunately Syria has come to a point of no return,” he said.
Just in time for the geopolitical situation, Russia warns the US regarding the missiles shield. Al Jazeera reports;
News That Matters
Ft.com
The failed German Bund auction on Wednesday dampened sentiment in Asian stock markets on Thursday, particularly in Japan where the Nikkei 225 in the morning hit its lowest level since April 2009, reports the FT. http://ftalphaville.ft.com/thecut/2011/11/24/761231/bund-auction-reverberates-through-markets/
Investors paid record amounts to protect themselves against the risk of default by Bank of America on Wednesday, as fears grow over US banks’ exposure to the eurozone debt crisis, says the FT. Credit default swaps on BofA rose as high as 495 basis points, http://ftalphaville.ft.com/thecut/2011/11/24/761211/us-bank-credit-default-swaps-jump/
The Brazilian government has suspended Chevron’s drilling rights in Brazil until it clarifies the causes of an offshore oil spill, reports Reuters. Brazil’s National Petroleum Agency said it decided to halt Chevron’s drilling rights after determining that there was evidence that the company had been “negligent” http://ftalphaville.ft.com/thecut/2011/11/24/761241/brazil-suspends-chevrons-offshore-drilling-rights/
The Irish government wants European authorities to share the cost of Ireland’s €63bn ($84bn) bank bail-out because “reckless lending” by international banks to Irish banks contributed to their collapse, http://ftalphaville.ft.com/thecut/2011/11/24/761181/ireland-seeks-eu-help-over-bank-bail-out/
What’s after Black Friday? Black Monday?
With markets closing on the lows, as SPX “collapsed” 1% during the last minutes before the close, we suddenly start feeling that deja vú of the flash crash. With liquidity drying up, and HFT dominating the markets, this could well turn into another Black Swan event.
While majority of investors being prepared for a quite week, we have witnessed quite the contrary. German bond auctions not going well, Groupon a “failed” IPO, and now topped with Syria soon to be invaded, is creating a very volatile environment. What’s next, Iran getting involved? Stay tuned, as the week is not over yet, and Black Friday, might turn into a Black Monday.
As for that “failed” German auction, some color by the Economist;
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