Ahead of the open, (9-12)
Friday, December 9, 2011 at 02:07AM While all investors were awaiting in the 3 day calm before a potential storm due to the EU summit, it was pointed out 48hrs ago a catalytic event was possible beforehand that was overshadowed.. “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!”. So, while many were likely snoozing pre-market with no speculation seen in media of this happening, “ if Draghi doesn’t repeat’ as hinted here. A 40 SP handle or ~3% from high to low for the day ensued as soon as Draghi poured cold water, stomping out idea of ECB escalating bond purchases and squashed idea of lending to IMF as a channel stating it was ‘legally complex’. Also, a false article rallied market briefly on the ESM/EFSF, but was rejected by Germans giving ESM ‘no bank license’ (leverage), which is key to a potential ESM/EFSF program. All in, a pretty nice short trade for the day, if you followed the potential catalytic events into the day.
In all, this market letdown news will probably turn the tables and overshadow any summit news considering no bazooka is even on the table, but rather more band aids. This may be even a market positive as discussed yesterday because the market is sanguine to an end result. The biggest disappointment could turn out to be today’s Draghi comments and summit becomes a sideshow. The market off 40+ SP points today off highs probably ate into the potential losses short term for the market with nothing major coming out of the summit. Note, today’s was selling pressure was not panic like.
Overnight summit update:
Leaders agreed on some key issues, ESM revealed, but no bank license, a fiscal pact that possibly came up short (enough to stop S&P downgrades?), will study IMF loan within week for 200bln (may provoke other countries to join ..China, Russia etc+ good for equities of course.), nothing on bonds,….think the (bracketed) above leaves a lot of speculation ahead and more intraday swings to come, but overall progress made in day 1 and ‘can’ not straying off course.