Ahead of the open, (06-12)
Monday, December 5, 2011 at 11:47PM Into the trading week, noted..”In all, the upside risks for more action (steps) outweighs any possible ‘intraday’ political maneuvering headlines we may hear during the week that may be perceived as negative.”
It might’ve not been traditional political maneuvering into the summits, but S&P announcement that they placed its long-term sovereign ratings on 15 EU area countries on Credit Watch with negative implications smells of politics anyways . S&P said that they would conclude their review on the Euro zone sovereign ratings as soon as possible following the EU summits. The news not only curtailed the rally into ‘R’ at 1265, but dropped SP to low 1250’s at one point. By close what was ‘perceived as negative’ was ultimately shrugged off by the market (close 1257). Of course, it could be a huge negative if leaders fail with a constructive solution to sovereign debt obstacles, but with more ‘band-aids’ in the morning (Italy’s radical austerity, France/ Germany actually agreeing on something= Italy/Spain yields falling), it’s hard to ruin the positive ‘hope’ sentiment. Also, in this view this news is pretty well baked in as we’ve seen huge selling in Eurozone bonds recently. Although Germany on watch was a big surprise, but probably nothing but a kick in the pants to get something sustainable done this week!
The short term focus would have been on European bonds, but by news time those markets were closed and US really had no idea of how this will be perceived by what matters. Remember from heading into the week, it’s the Eurozone bonds action that should dictate your trading in equities this week. If selling pressure doesn’t resume, equities will be okay.