Oil inventories secondary, market hostage to Europe

Quote of the Day

The trouble with retirement is you never get a day off.

Abe Lemons

Europe, Europe and a little bit more Europe. Not much of anything else matters very much in the short term other than what will be the final outcome of tomorrow's ECB meeting as well as the very important EU Summit on Friday. As we have seen all week the markets are reacting to every single news snippets that has the word Europe in it whether or not it is something significant or not. Along the way other events are unfolding but they have continued to play a secondary role insofar as the direction of most risk asset markets. Interestingly the market is slowly building in a positive outcome to the European events as equities and most commodity markets are higher on the week even after S&P put 15 EU countries and the EFSF fund on downgrade negative. In each instance the markets sold off but within a relatively short period of time they recovered most of the gains that were in place prior to the announcements by S&P. When seemingly bad or bearish news hits the markets and the market does not react to the information it certainly suggests that there are a lot of reluctant sellers and possibly some underlying buying in the market. Tomorrow starts the big events and we will then see how the market digests and finally trades around the main results.

Today, Treasury Secretary Geithner said he was very encouraged with the progress that is being made in Europe in coming up with a plan to shore up the euro. In addition China also expressed support for the current outlines of the plan and offered to work with the European governments. They said they were ready to work with the international community to prevent turbulence in the international financial markets and the world economy and promote a return to growth. So everyone is saying all of the right things. The bottom line will come on Thursday and Friday and how the markets interpret and react to the results.

So far in the world of equities the markets have been reacting positively this week as shown in the EMI Global Equity table below. The Index is now up by 1.4% on the week narrowing the year to date loss to 12.2%. The US remains at the top of the list of bourses in the Index. So far this week the equity markets are suggesting that the Europeans may come up with a plan that the market will view as one that is long lasting and durable. For this week equities have also been a positive support for oil and the broader commodity complex.

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