Yesterday's volatile day looks like it was stoked at the end of the session with word there would be an "emergency G-7 conference call" today, and on any whiff of intervention the markets must go up. The conference call has ended and we have an agreement…. that Europe will work together to solve the woes of Greece and Spain. What a breakthrough! Fingers crossed on the next emergency meeting…
Outside of that it's a week full of potential "actions or promises of". Fed VP Janet Yellen has a speech tomorrow evening – everyone is hoping she whispers QE. Bernanke testifies to Congress Thursday – everyone is hoping he whispers QE. In between is an ECB meeting – everyone is hoping Draghi whispers rate cuts and maybe a 3rd round of LTRO. You should see the pattern. Frankly none of this solves the fundamental problems but it is all about kick the can and thinking of ways to goose the market.
In the end the main issues are recapitalization of banks – especially of the Spanish kind, which seem to be making the most progress in terms of agreement of a 'potential' framework. More and more people are coming to the view a banking union would be agreeable. The devil is in the details – and if this can be built anywhere near the time needed by demanding markets. Spain does not want any rescue sent to their government – thus increasing their debt load – but directly to their banks. Germany disagrees. And round and round we go.
A phone call amongst G-7 finance ministers and central bankers is underway, with a source saying Germany is pushing Spain to accept a rescue from the European bailout fund, but Madrid is resisting. Spain, of course, would prefer the bailout funds go straight to its banks, thus bypassing the need for the government to submit itself to Troika pencil-pushers.
An FDIC type of insurance to prevent potential bank runs is also on the block – this would seem to require ECB involvement in the near term at least since putting this in place in the form being discussed will take a long time.
Of course the Greece elections mid month are a catalyst – will they stay or will they go? And when? And how? And what contagion would it lead to?
A lot of this is ordering… if Europe could firewall the banks through injections and then FDIC-like insure deposits so there were not a run on banks, perhaps when/if Greece was punted out of the EU, things would perhaps work out sorta…kinda… maybe? But if the first two items were not taken care of BEFORE Greece exited (if and when) it's a big mess. All of this being uncharted territory of course. That said, this STILL does not fix the economic issues and lack of competitiveness and inability for the market to adjust currency valuations amongst EU members – but for the emergency of 'today' it seems the path that would assist the most.
Soros was out this weekend saying all this must be fixed in a few weeks – of course impossible. But I think the game plan – or certainly the one if this was a U.S. centric issue – would be to unload bazookas in every direction in the near term to provide ground cover for the other steps which would take far longer. Of course it's not a U.S. issue or a "one government issue" but seventeen. And in a region where "the market" does not rule every decision as it does here.
So while technicals will not matter as much when/if the bazookas are unleashed, the market continues in a tenous pattern of multiple bear flags. Most key indexes have broken their 200 day moving average although yesterday they made a run into the glamour tech stocks which helped the NASDAQ get it's nose right back on its 200 day moving average. But until the pattern of a steep loss followed by sideways consolidation followed by steep loss ends, the environment remains trecherous.
For those following the IBD system, yesterday's "gains" would be day 1 of a move up, and we now would need to see a 1.7%+ type of move sometime in the following 4 to 10 days to create a "follow through day"; as long as yesterday's lows were not undercut in the interim. So any form of bazooka or "hints of said bazooka" could of course lead to a 1.7%+ type of day. This is the positive spin.
ISM Non Manufacturing at 10 AM, and then we await the central bankers the next 60 hours.
p.s. Mr. Hilsenrath – i.e. the Fed mole at the WSJ - was on CNBC this morning and gave no definitive comment on whether the Fed acts in the mid June meeting. Usually Ben likes to telegraph his moves ahead of time, so the window is narrowing for said "hint". That said, if its a global intervention involving multiple central banks at once as we have seen a few times the past 3-4 years, total surprise would be best to 'shock and awe', no?
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