July 2nd, 2012
in Gary's blogging
Opening Market Commentary For 7-2-2012
Pre Markets were up slightly, but moved to mixed territory by the first few minutes of the opening bell. The DOW was down a few points as the 500 and $RUT were up a few points all on low to medium red volume. At first glance this Monday is going to set the pace for the rest of the week being slow and moderate as the markets appear to be stuck in molasses. By 10 am the red volume moved to the medium zone as some profit taking got underway. Some investors are getting out before they leave on Holiday, can't say I blame them one bit. The $VIX looks like a seismic chart as the volume becomes heavier as reporting financial news is not as good as was expected. (See chart below)
The European mess has not gone away by any means and a few analyst feel the volatility in the EU is just getting started as Finland is considering blocking attempts of bond purchases. The coming week will be packed with major economic updates changing a rather bland Monday to a chaotic trading sessions where some vacationers will wake up to bad news. The current RRR** is low and anytrading should be done cautiously.
There have been some questions about whether Finland could block bond-buying. Bruno Waterfield, our man in Brussels, writes:
Regular decisions are by unanimity so Finland can block.
But if someone, like the Finns, is being awkward for 'urgent' decisions to preserve 'financial stability' the ESM can take a decision by a vote.
The threshold, based on capital contributions, is 85 per cent, meaning that Finnish (1.79pc) or Dutch (5.7pc) would not be able to block.
Germany does have a block (27.1pc) and must first ask Germany's parliament, a special budget committee, before agreeing anything.
German parliamentary opposition is much more likely to be a block on bond buy-ups or direct bank recapitalisation.
Finland and the Netherlands added to fears over the fragile nature of the agreement by stating they would block a key element of the deal that would have allowed the eurozone's new permanent bailout fund to buy bonds in the market.
And so we have recoupling, with the ISM printing below 50 (i.e. contraction) at 49.7 for the first time since July 2009.
Expectations of a 52.5 print were obviously blown away, as the final number came well below the lowest Wall Street forecast of 50.5. Prices plunge to 37 on expectation of 57 and there go your corporate margins; Employment down from 56.9 to 56.6, and New Orders implode from 60.1 to 47.8.
Epic disaster which proves that no, decoupling, does not exist and now puts the Fed back in play, which however, with the S&P just shy of 2012 highs, can do didley squat.
The first column is what was reported, the second is what was expected and the third is the last report. Readings above 50 point to expansion while readings below 50 indicate contraction.
At 10:15 the DOW is at 12824 down 56.58 or -0.37%.
The 500 is at 1358 down 3.20 or -0.24%.
$RUT is at 797 down 1.46 or -0.230%.
SPY is at 135.85 down 0.26 or -0.15%.
The trend is up and the current bias is down.
WTI oil is at 83.36 trading between 85.00 and 83.20 and the bias is negative.
Brent crude is trading between 97.74 and 95.31 and the bias is negative.
Gold is down today at 1594, trading between 1599 and 1587 with a neutral bias.
Dr. Copper is at 3.46 down from 3.50 earlier.
European markets are up today. The FTSE 100 in London is up 0.64% while the German DAX is up 1.27%. The CAC 40 in France is up 1.34%. The Asian markets closed mostly up with the Hang Seng at 2.19. The Shanghai Composite up 0.03%. The Nikkei down -0.04%.
** RRR = Risk Reward Ratio
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Written by Gary