WEEKLY MARKET MOVERS: MARKETS ADRIFT ON DENIAL, WILL DENIAL TURN TO BLOOD?

 Global Market Recap, Observations, And Lessons For The Coming Week For Traders / Investors in Indexes, Forex, Commodities, via both spot market, binary options instruments

Markets Plunge On Scary Fundamentals, Then Recover By Ignoring Them

PRIOR WEEK

Two weeks ago risk asset markets rose steadily only to see gains wiped out Friday.

This past week the opposite happened, with the fear climaxing Monday on a wave of bad news, and then markets spent the rest of the week slowly recovering on a combination of pure technical bounce and central bank stimulus. Certainly the recovery wasn’t due to any significant good news or fundamental improvement, though there were a few bright spots, like good Aussie data on Thursday.

Otherwise, the past week appeared to be characterized as a draw between:

• Bearish news surrounding the second annual spring EU debt crisis, and overall slowing in most major economies
• Technical support and central bank stimulus cash

Here are the details

MONDAY: BIG EU FEAR DAY

Asia, Europe, And US Risk Asset Markets Down Hard 1-3% On EU, China Concerns From

• A WAVE OF EU DEBT CRISIS BEARISH NEWS

• • SPAIN, GERMAN ELECTIONS: show rising opposition to the prevailing extend and pretend strategy
  • MORE DEBT DOWNGRADES: Greek downgrade by Fitch the prior Friday and Monday’s Italy debt downgrade by S&P
  • GREEK PM RULES OUT RESTRUCTURE, APPARENTLY STILL IN DISTURBING DENIAL ALONG WITH ECB & MANY EU OFFICIALS. This sentiment is understandable given the risks of a market crisis on contagion fears. However, as unpalatable as reality is, denial is not an answer and piling on more debt means the ultimate defaults cause that much more damage. Much of the reason for last year’s EU spring crisis was the EU’s indecisive delays that just let markets get more nervous. In contrast, the US has much more centralized decision making, and so was much quicker to respond with shock and awe bailout guarantees and thus calmed markets faster when it faced systemic risk from the Lehman Bros. bank collapse. Ultimately this is why we like the USD more than the EUR, though neither is great. Both have ugly fundamentals but the US is a proven currency union with the ingredients for success, the EZ is not, and getting less so by the day.
  • GREEK BOND YIELDS FLY HIGHER. This is more of symbolic than practical issue, because already high yields have already cut off Greece is from debt markets, so why should some extra percentage points matter?

• HSBC CHINA FLASH PMI WEAK ALSO DOESN’T HELP

The result: USD and other safe haven assets benefit, risk assets, risk currencies and commodities fall; oil leads the way lower, falling 2.4%

The Rest Of The Week

Markets Rebound On Technical bounce, Sheer Denial, Final QE 2 flows, Who Knows?

Markets stabilized Tuesday, and slowly rose Wednesday through Friday, without any apparent fundamental justification, leaving us to conclude that the rebound was just a combination of a technical bounce off of support, lack of further significantly bad EZ news and possible central bank liquidity injections on the QE 2’s last week.

The Bearish:

Considering the amount of bad news call it a moral victory for the bulls. Bearish news included:

• more bad news for Irish bonds

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DISCLOSURE /DISCLAIMER: THE ABOVE IS FOR INFORMATIONAL PURPOSES ONLY, RESPONSIBILITY FOR ALL TRADING DECISIONS LIES SOLELY WITH THE READER. IF WE REALLY KNEW WHAT WOULD HAPPEN, WE WOULDN’T BE TELLING YOU FOR FREE, NOW WOULD WE?
AUTHOR SHORT THE EUR