Although markets awash with reports today downplaying expectations for summit, market is seemingly shrugging it off for a day 3 of consecutive green closes. This is probably evidence of resiliency and so the risk is to the upside. Meaning, even if the summit comes to only a roadmap/ timetable (longer term plan), it may be sufficient this time around to kick the can some more. This works as long as Eurozone ‘can’ doesn’t stray and roll left or right off the path. The ‘can’ this time may have enough recent band-aids on it to not explode into year end. The fact a ‘treaty’on political/fiscal is the only real news Germany/France are making this week shows another band-aid for the longer term is being worked on and not a grand ‘shock and awe’ resolution to end crisis is coming from the summit.
All in, it feels like good news will get a bigger market reaction. Simply, if market is shrugging off the downplaying of expectations (not selling off) now, it shows investors are not expecting a grand resolution despite the ‘survival at stake’ headlines many keep (press, shorts) throwing out. “Expectations are too high”, setting up for a big market disappointment is another line being used, but markets keep showing they are sanguine to the summits end result.
As far as the day’s trade, as cited into yesterday’s open the ESM/EFSF speculation was not worth having as it’s impossible to implement. After a green session overnight, German official rejected the notion by US market’s open sliding it to below SP1250 before the dip was bought and it was bought even before the 330pm Nikkei/IMF headline later denied). This indicates it wasn’t just a false report doing the melt up job. Financials as a group noted last week as a long will lead the way as today demonstrated again with the largest sector gain.
Again for Thursday, pointed out yesterday what to look for (ECB Draghi) and overall watching the Euro bond action for the equity markets.