May 9th, 2012
in Gary's blogging
Making things more difficult for the US markets this week is, of course, the European Union's members bickering about the pros and cons of austerity programs and other forming 'Black Clouds' of serious financial issues. Greece appears, for now, to be totally rejecting the austerity measures approved earlier by the IMF. And is currently thinking on planning leaving the Eurozone completely, but not this month anyway. This news is not very encouraging for taking a investment step towards the long side in any market this week. And it isn't looking very auspicious for the next couple of months either.
The new socialistic French President is promising new government spending and rejecting austerity while Spain continues to stumble and crumble. Spain's problems are two tiered; one is the high debt, nearing 80% of the GDP and the other is its banks losing access to market funding because of a real estate bubble and now have found themselves at the bottom of a dry well. The situation in Spain is perilous to say the least. Follow up:
Meanwhile, we have Mr. Alexis Tsipras, the leader of the Greek coalition radical left SYRIZA party, who wants to meet with Germany's PM Merkel and Frances President Hollande. But the “Merde”** Duo (replacing the 'Merkozy Duo') have refused believing that new Greek election will be forthcoming due to Tsipras' inability, so far, to form a government. If the Greek lawmakers are unable to form a coalition government soon, the debt-plagued nation would be forced to hold a new round of elections in June which might be a blessing for the pro-austerity folks.
“New elections looming for Greece The leader of Coalition of the Radical Left (SYRIZA) Alexis Tsipras is due to meet the heads of PASOK and New Democracy on Wednesday but his slim chances of forming a unity government seem to have disappeared and Greece is likely to hold new elections next month.”
Some have called the Greek drama to just be a side show while the real entertainment is coming from Spain watching it march towards a certain default. The problem is that the cost of insuring, so the country doesn't default, is quickly becoming an alarming aspect of the deepening Eurozone debt problem.
Tearing up Greece's bailout agreement will lead to "certain and immediate" catastrophe, according to Antonis Samaras, the leader of the New Democracy party. Mr Samaras said:
Denouncing the agreement [...] will lead to immediate internal collapse and international bankruptcy, with the inevitable exit from Europe [...] The agreed amendment of the loan deal is one thing, it is a completely different thing to unilaterally denounce it.
Mr Samaras also urged Syriza leader Alexis Tsipras to retract a statement yesterday that rejected Greece's bail-out deal as "null and void". He said:
If he does not do this, it means that he is trying to build a broad anti-European front and to take us to elections again. The Greek people have not given a mandate to destroy the country.“
According to the Telegraph, “The cost of insuring Spanish debt against default has ticked up on the back of today's jitters. Five-year credit default swaps are currently trading at 512 basis points. This means it costs £512,000 [$666,000US] a year over five years to insure £10m of Spanish debt, and implies a 35[%] chance of default over the next five years, according to Markit's Gavan Nolan.”
Guido Westerwelle, Germany's foreign minister, stated that “if Greece stops cutting, the EU and IMF will stop paying”. Mr. Westerwelle further stated:
“Germany would like to keep Greece in the eurozone but whether Greece actually does remain in the eurozone or not lies in its own hands. There will be no more bail-out cash if Greece refuses to fully implement reforms.”
Amadeu Altafaj, spokesman for EU economic affairs commissioner Olli Rehn told reporters today:
“Greece will receive its next, €5.2bn [$6.76bnUS] tranche of bailout loans tomorrow.
The payout will take place because it has already been approved.”
According to Germany's central bank, “Bailed-out governments must stick to their belt-tightening plans if they want to return to the bond markets”.
In an emailed statement seen by Bloomberg, the Bundesbank said:
“In light of the still very high debt load in some countries and lack of confidence in the sustainability of their public finances, postponing budget consolidation would be cause for concern [particularly] in conjunction with a delay in implementing structural reforms”
The challenge for the bulls today is to keep the markets from falling below their respected 50 day MS or 100 day MA and supports, but it isn't looking good after this week. The DOW, SP500, SPY and QQQ are sitting on their 100 day MA's. The $RUT fell through its 100 day MA and is sitting on its 200 day MA. All in all it is looking badly for the bulls and the old adage of 'Sell in May' has come to fruition it seems.
My opinion of this 100 day MA barrier is that it will most likely hold this week unless there is overwhelming bad news. Tomorrow's US financial news with medium importance USD Trade Balance (MAR), low importance Initial Claims, USD Continuing Claims (APR 28) and other employment reports will certainly tip the scales for the bears and bulls.
The real test for the market bulls comes on Friday with the medium importance financial reporting of US Producer Price Index Ex Food & Energy numbers. Although I do not expect the Chinese reporting of their Consumer Price Index (YoY) to have much effect on the US markets, it could if the numbers are well below the expected 3.4%
The same is true with the Eurozone's German Consumer Price Index and the European Commission Releases Economic Growth Forecasts coming up. Nothing can be taken for granted anymore.
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Written by Gary
**'Merde' was coined by Cam Hui in his article, The 'Merde' Rally?