Quote of the Day
It often requires more courage to dare to do right than to fear to do wrong.
I know it sounds repetitive but all risk asset markets continue to be impacted by the evolving sovereign debt issues in Europe and in particular as to how the leadership is going to come up with a long lasting and durable solution. Yesterday afternoon a story hit the media airwaves indicating that Germany and France were in agreement to leverage the ESFS bailout fund to upwards of €2 trillion...a kind of shock and awe number and potential solution to the problem. The story sent all risk assets markets up strongly but falling off a tad around the close in the US. Whether the story is real or not, it certainly shows that the markets are completely linked to all of the 30 second news snippets hitting the media airwaves out of Europe or about Europe.
On a negative note Moody's downgraded Spain (after the close in the US) with minimal impact on markets so far. In addition concern is building in the marketplace that France could also see its top rating downgraded which could impact the negotiations and ultimately the solution to the debt issues in the EU. The markets are fixated on a solution and the momentum is building for a solution to be announced at the EU summit in Brussels this Sunday. Even though Germany downgraded the expectations from the summit on Monday the market is trading like it is holding high expectations for a solution to be achieved that will be long lasting. That said with all of the dynamics that are at play (as mentioned above) getting to a solution in the short-term will be complicated and certainly not without risk.
For the rest of this week and into early next week the markets will remain mostly focused on all of the statements coming from the key players in Europe in the lead up to the Oct 23rd summit. As each day goes by the summit is taking on a greater and greater level of importance ...at least in the minds of the majority of the risk asset market players. Whatever the outcome is market players will likely start to refocus on the rest of the global economy next week sometime. Over the last several weeks the majority of the macroeconomic data that has hit the airwaves has been a tad better than expected which has resulted in moving the market sentiment a bit away from talk of a double dip recession in the developed world. In addition the view toward the emerging market world...in particular China is moving more toward a soft landing for their economy. So when the market moves its attention back to the rest of the global economy the reaction could turn out to be supportive if the macroeconomic data continues to slowly improve.
The global equity markets recovered most of the previous day's losses as shown in the EMI Global Equity Index table below. The Index narrowed its loss for the week to just 0.2% gaining about 1.5% over the last twenty four hours. Nine of the ten bourses in the Index gained ground with China the sole loser for today. The US Dow moved to break-even for the year after starting with a year to data gain earlier in the week. The Index is still below the bear market threshold of 20% loss for the year but as I have been discussing for months where the equity market heads from here will be dependent on the solution that emerges in Europe. For the short term the global equity markets are pricing in a solution and this has translated to being a positive for oil prices as well as the broader commodity complex.