by Scott Freeze
Some news events over the weekend that could have significant market impact this week came out from Europe and Asia. The first was a news event from the ECB stating that there looks to be an extra $239 Billion in loan losses coming out of the EU. To go along with that France announced over the weekend that they may lose their AAA credit rating as their Debt to GDP ratio inches upward and is approaching PIIGS levels. China manufacturing has slowed, and they are warning that their housing bubble may be worse than the US as they combine the current financial crisis with social discontent.
The issue of social discontent is very worrisome for the markets. We saw the job riots in France 18 months ago, and rioting in Greece and Germany over austerity measures. Whether or not the riots actually impact business and production the viewpoint that the citizenry is rioting will cause more volatility and worry in the international markets and keep investors on their toes looking for the first reason to sell the foreign markets, especially if it becomes a widespread issue in Europe and China.
Oil continues to fall slowly and a slowdown in foreign production coupled with the continual strength in the dollar will make it hard to see oil rally. Keep in mind that the drillers will continue to struggle, but Oil may be getting close to bottoming out. While a precipitous rise is unlikely in the current economic environment, the forecast for a very heavy hurricane season and delays in new rigs and drilling continues as a result of the BP disaster, the market looks to be setting up for a recovery in oil pricing. It probably will not happen in the next few weeks, but shorting the commodity at this point looks to be a high risk low reward play and a rebound in oil prices is very likely in the near future.
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