As expected the market bounced hard off of recent lows. Equities rallied Wednesday propelled by hopes that the Federal Reserve would intervene once in again in the credit markets and that positive news was forthcoming in Europe. As for the latter, I would argue the situation in Europe is getting worse by the minute and we will have to have a genuine crisis before the Europeans act in concert. Given that, my outlook continues to be very cautious in the near term.
10 negative data points/news coming from Europe this week:
- There is an accelerating capital flight out of the troubled economies of Europe. Migration out of Spain, Greece and Ireland is concerning with most of the money heading to Germany.
- Merkel is proving to be a more stubborn and intransigent leader than one would expect given the stakes of not acting. Even President Obama, whose re-election hopes might hinge on her actions, has been unsuccessful so far in moving her positions.
- The slowdown in Europe is starting to impact more and more U.S. companies. Mcdonalds (MCD) just reported May same store sales rose 2.9% in Europe, less than the 4.8% expectations.
- Italian industrial production for April came in at -1.9%, substantially below the projections of a 50 basis point contraction.
- Despite hopes by the market for collective "Eurobonds", the actual response from Europe is likely to be timid and disappoint investors.
- Fitch Downgraded Spain to a BBB credit as it sees an economic slump at least through 2013.
- Greece's unemployment is hovering at just under 22% for May, up from under 16% in May of last year.
- Aid for Spain's banks is at a critical juncture, with German and Spanish leaders at loggerheads. It would be easy for this situation to get out of control as the official "request" might come as early as this weekend.
- Despite continuous calls for Germany to bail out its European neighbors, it may not have the money to do so even if it had the will.
- The recent rally in the Euro is unlikely to last and this was on the factors to Wednesday's massive up day.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.