Market Direction Bearish As The EU Squabbles

Premarket Commentary For 06-28-2012

Markets are expected to open down with a negative bias. Overnight news was directionless, like yesterday, and most likely will effect the markets in a similar fashion this morning. The SP500 futures were up earlier at 1327 but then dropped like a rock to 1316 and back up to 1324 and once more down to 1317. Volatility is going to be the name of the game today as the bulls and bears play hide ‘n sneak. Watch the volume for clues to the movement validity. Only high volume will indicate a true direction. The big market mover will be the Supreme Courts ruling on Obamacare at 10 am. The RRR** remains in a negative area but could change after 10 am to a buy.

The financial reports this morning were mixed with the high rated Core Personal Consumption Expenditure (QoQ) (1Q T) higher at 2.3%, expecting 2.1%, Gross Domestic Product (Annualized) (1Q T) remained the same at 1.9% and the Gross Domestic Product Price Index (1Q T) came in higher at 2.0% expecting 1.7%.

The medium rated Personal Consumption (1Q T) came in lower at 2.5% expecting 2.7% which was the same on the last report.

lower The low importance Initial Jobless Claims (JUN 23) came in lower at 386K expecting 385.

The premarket reacted flatly with a slight positive bias with the SP500 futures moving up to 1319 from 1317 and remaining flat at that point.

@SA

Supreme Court set to rule on Obamacare. Having not done so on Monday, the Supreme Court is expected to today rule on the constitutionality of the Patient Protection & Affordable Care Act. “This is the biggest policy uncertainty in the S&P,” says Deutsche Bank’s David Bianco. “I just don’t know what’s going to happen.” You can follow the court’s live blog here, with a verdict possible at 10 am.

German Chancellor Merkel has put her foot down on Euro Bonds. The Telegraph reports:

“she strongly disagrees with EU proposals that join debt liability needed for bloc. She also reiterates that euro bonds are economically wrong and counterproductive. She says that joint debt liability can only come once controls on national states are in place. She will ask EU countries if they are ready for treaty changes and will tell other leaders that time is of the essence. Merkel expects controversial discussion at the Brussels summit and eyes will be focused on Germany. She reiterates that Germany does not have unlimited strength.”

The Battle Royal in Europe is just starting to get dicey with the Germans holding all the cards. I have become a firm believer that the dissolution of the Euro will be the best thing for the World financial situation in the long run. Even the UK is seriously considering leaving the Eurozone as the ‘laws’ being implemented in Brussels are affecting the UK and their economy in a negative manner according to the Telegraph.

“The UK would escape all manner of regulations coming from Brussels which may be restricting UK growth – in particular relating to businesses. The BCC (perhaps not impartially) estimates that the annual cost of EU regulation for UK firms is £7.4bn. And George Osborne has recently faced a struggle with the EU to allow the UK to impose tighter capital regulations on UK banks than the minima agreed under Basel III. The UK would be free to adopt stricter immigration controls than at present; or if it wanted to maintain relatively free travel, it could become part of the Schengen Area of free movement.”

@telegraph:

Economist Nouriel Roubini was just on Bloomberg TV discussing the unfolding euro crisis and the German reaction to all of these proposals to mutualize debt.

Roubini told Bloomberg that the Germans worry about three things:

• One is about moral hazard. They say, “if we agree on these things, there’s not going to be enough effort by Italy and Spain.

• Secondly is a time consistency problem. If you agree on that stuff and they don’t delever, then Germany is going to take a huge amount of risk.

• And three, there is a huge amount of credit risk the Germans are going to take by backstopping the debt on one side and also the deposits. You need also EZ-wide deposit insurance.

He then said that basically Germans are being asked to marry a non-virgin, and before they’re willing to do that they want to see some abstinence…

The Germans say, “you lost your virginity. Now you sign a contract; you say, ‘I’m a boring virgin.’ Be abstinent for the next two years. Show me your soul and two years from now, we’re going to get married. But today, I commit to marriage today? Forget it.”

European markets are down on the uncertainties of solving the EURO crisis today. The FTSE 100 in London is down –1.32% while the German DAX is down –1.78%. The CAC 40 in France is down –1.02%. The Asian markets closed down with the Hang Seng down at -0.53%. The Shanghai Composite down –0.95%. The Nikkei up -1.65%.

WTI oil is at 80.64 trading between 79.75 and 80.55 and the bias is positive.

Brent crude is at 93.73 trading between 92.40 and 93.80 and the bias is positive.

Gold is down today at 1571, trading between 1577 and 1556 with a negative bias.

Dr. Copper is at 3.34 up from 3.30 earlier.

** RRR = Risk Reward Ratio

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Written by Gary