Ahead of the open, (07-12)
Wednesday, December 7, 2011 at 02:33AM The premise of being long stocks since last week remains intact.
As discussed, the S&P downgrade was going to be overshadowed by ‘hope’ and more band–aids. As far as today, European bonds did not sell off on S&P news, thus keeping equity markets in a holding pattern most of the day. Speculation of Eurozone running 2 bail-out funds (ESM /EFSF – ESM succeeds EFSF mid’ 12) simultaneously for a period of time, doubling in essence to just under 1trl euros gave a bid to equities late afternoon. This would be construed as a half measure and /or even impossible to implement, so it’s no surprise market retreated again off ‘R’ 1265. Again, speculation is not what market wants, it wants definitive action. If this was a conclusive action, market would have held its gains. In all, last hour moves up or down like this are negligible as market awaits ECB Thursday/ EU on Friday.
Oh yeah, lost in the storm of headlines is a potential catalytic ECB meeting before the summit. Reason being the Draghi statement from last week was suggestive/implied SMP purchases could be stepped up if ie. reforms were progressing and/or achieved later. If this change of heart is reiterated and/or hints of lending to IMF, market should be happy! If Draghi’s doesn’t repeat, watch out! He can’t/won’t say SMP’s will be ramped, the numbers will show up a few weeks later, that’s is why just being ‘suggestive’ again matters so much.
In all, expect leaks (true or false) all day in regards to summit dictating intraday moves. Note, as we inch closer to summit, expectations being too high are increasing. Still, there is time left to‘hope’ and with ECB meet up to deal with before.