The markets return to full capacity here in North America as traders return from yesterday’s holiday and the EUR is trading lower. Having broken the psychological 1.2700 level, the EUR traded as low as 1.2665 overnight. CPI numbers out of Spain and Switzerland were disappointing and this has added to the negative karma. UK CPI (higher than expected), German and Eurozone ZEW (big disappointment) are out today as well.
Adding to the flight from risk is negative news coming out of Greece. The next release of bailout funds has been postponed until November 20 and Greece was granted a two year extension for fiscal adjustment. Adding to the currency woes are continued concern over the US fiscal cliff. Analysts believe this is a major factor over the current “risk” selloff. The belief here is that if the fiscal cliff is not resolved this would result in a series of budget cuts and tax hikes, which would pull the US and then the world back into recession. This factor will remain a negative to market sentiments until some compromise on the fiscal cliff is reached.
The major result of the Finance Minister meeting in Brussels yesterday was the Greece has been given another two years, until 2016, to get their deficit down to 2% of their GDP target. While EU ministers are pleased with the progress that Greece has made, IMF director Lagarde stated her views were different than that of the EU ministers. The EU expects the debt level to be brought down by 2022, while the IMF chief said it needs to be achieved by 2020.
While the “vibe” out of Greece could be considered positive, the fact that the net bailout was delayed is definitely negative. Apparently, all that was promised by Greece has not yet been achieved, so that was the reason given for the delay in aid. Spanish officials continue to maintain there is no need for a bailout to their country as the finance minister stated “at the moment, as in the past, the Spanish government is financed and Spain is doing what it has to do in terms of meeting its obligations”.
The EUR continues to be pressured and resistance now is firmly at the 1.2720 level. Look for the market to continue to probe lower, slowly at first as the EUR approaches the 1.2665 area. The option bids that were rumored at 1.2700 are obviously gone and with continued concern in Europe over Greece and Spain, the selling mentality should remain.
In the US we will continue to heart talks about the fiscal cliff as Democrats and Republicans look for some compromise regarding this issue.
Asian and European equity markets are all lower this morning and DOW futures are also lower at 4:55 this morning. Therefore, anticipate selling at the opening this morning.
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