EmailThe market's perception of events unfolding in Europe is moving from bad to worse amid a swirl of reports with worrisome undertones.
In particular, Greece is said to be struggling to meet fiscal targets that would allow it to receive additional bailout funds; there has been talk that Germany is scenario-planning for a Greek default; Moody's is believed to be on the cusp of downgrading France's banks; credit default swaps and yield spreads are widening for European sovereigns; and, for good measure, there was an explosion at a nuclear plant in Southern France.
The overlay to these worrisome undertones is that the G7 meeting over the weekend was another ceremonial affair that produced nothing in the way of specific solutions.
The S&P futures are trading 1.1% below fair value, which is setting the stage for a weak start for the cash market.
The only silver lining there is that opening losses in the U.S. will pale in comparison to European bourses, most of which are down between 3.0% and 5.0%. Asian indices fell between 2.0% and 4.0%, so the question is, will the U.S. weaken further and follow the lead of its foreign counterparts or will it set its own course of relative strength?
Strikingly, there isn't a full-fledged flight-to-safety this morning. The U.S. Treasury market is little changed at the moment; the U.S. Dollar Index is down 0.1%; and gold prices are off 1.0%.
With those indications in mind, this could be one of those bifurcated sessions where U.S. averages model sizable losses into Europe's close and then work to pare those losses after Europe closes.
The only known factor at this juncture is that there will be a lot of red on stock monitors soon after the opening bell.
There isn't any economic data or notable earnings news to distract participants this morning, so European issues will be the focal point until -- or if -- the U.S. shows quick rebound potential. Then, the conversation could switch to how the U.S., despite its own problems, looks comparatively better since our banking sector has already passed through the valley of credit darkness.
That's not to say our banking sector is bathed in light now -- far from it. However, it's not exactly in a black hole like it was when Lehman Bros. went bankrupt.
Shifting gears, President Obama is expected to send specific details of his job growth proposals to Congress today. The debate that takes shape around that plan will either be a source of upset for the market in coming weeks or a major surprise. The market has come to expect the least from members of Congress, so a spirit of compromise holds potential to give the market a boost.
In the meantime, participants should expect further volatility in the equity market.
--Patrick J. O'Hare, Briefing.com
Patrick J. O'Hare is Chief Market Analyst for Briefing Research, Briefing.com's institutional research service. To request a free trial, please email researchsales@briefing.com.
