Scheduled Event Risks Ahead: Choppy, Volatile Market Likely

by: Richard Shaw

Between now and the end of the year, there are several important events scheduled by governments, central banks and courts that are likely to create strong positive or negative price movements in the US and European stock and bond markets, and probably other markets in sympathy.

These dates could prove critical and determinative of at least short-term price movements, and in some cases longer-term prices:

  • September 4: German regional elections
  • September 7: German court decides legality of Greek bailout for Germany
  • September 8: Obama speech on infrastructure and jobs
  • September 18: German regional elections
  • September 20-21: Federal Reserve policy decision
  • November 3-4: G-20 consider worldwide investment transaction tax
  • November 23: US Congressional super-committee report due
  • December 22: US Congress vote on super-committee recommendation.

With the stock market so volatile recently, and with bulls and bears in a major tug-of-war, the outcome of those listed events on those dates, could move markets considerably.

The German regional elections on the 4th and 18th, may reveal a lot about the future of German participation in the Greek and other European bailouts, including the fate of the special financing facility Europe put together, or the future of Europe-wide bond issuance.

The September 4th German elections took place yesterday, and Merkel was not the winner. Here is what Bloomberg had to say about that today (September 5th):

European stocks tumbled, with the Stoxx European 600 index posting its biggest two day drop since March 2009, as investors speculated that support for bailing out Europe's indebted nations may fade.

The STOXX was down 5.11%. FTSE was down 3.58%. DAX was down 5.28%. Switzerland was down 4.04%. Hong Kong was down 2.95%. Mexico was down 3.57%. Brazil was down 2.71%

Bond prices rose (yields declined) around the world, and the shift to safety continues.

These scheduled events have global consequences, as the German vote probably demonstrated today.

While the German federal court does not speak for Europe, it certainly will speak to Europe, and once again bring the extent, timing, depth and character of the Greek and other troubled nation bailouts.

Obama's speech will go a long way to define the battle lines that will be drawn in the Congressional fight, and potentially dove-tail or conflict with the super-committee recommendations due November 23. The speech will be about job creation and infrastructure. That should mix things up a bit among employers and investors who are so anxiously awaiting a period of stable policies on which they can plan, operate and invest.

The Federal Reserve has planned a two day session instead of a one day session, to consider their options. That alone is a volatilizing fact. Will they do nothing or something? What might that be? There are those betting on something and those betting on nothing, and the "something" has different features in different investor camps.

An investment transaction tax was floated in the US Congress in the depth of the 2008-2009 US bailout. It didn't fly. Now Europe is considering a transaction tax. They realize that if they imposed such a tax alone, market activity will simply move away from Europe. Consequently, they are lobbying for a worldwide imposition of a transaction tax. While we doubt such a thing could be implemented in this time period, the discussion and reports from the meeting could be unsettling to markets.

The Budget Control Act of 2011 (the big agreement reached recently in Congress) creates a super-committee that must submit their recommendations by the 23rd of November (most likely with ample leaks of the negotiations before that time). They must hold their first meeting by September 16th. What they suggest is likely to create market winners and losers.

The US Congress must then vote a straight up or down vote on the super-committee recommendations by December 22. The month of December should be news and leak filled about that fight. Failure to approve the recommendations, would trigger certain automatic expense reductions ($1.2 trillion divided equally between defense and non-defense programs, except that reductions in Medicare are limited to 2%).

These events should make for a volatile remainder of the year.

Some key related securities: SPY, VGK, VT, EEM, KBE, EWZ, EWG, EWW, EWU, EWH.

Disclosure: QVM has written far out-of-the-money PUTs on SPY in the company account; and does not have positions in any other mentioned security as of the creation date of this article (September 5, 2011).

Disclaimer: This article provides opinions and information, but does not contain recommendations or personal investment advice to any specific person for any particular purpose. Do your own research or obtain suitable personal advice. You are responsible for your own investment decisions. This article is presented subject to our full disclaimer found on the QVM site available here.