Courtesy of John Nyaradi.
Upcoming European summit is huge for world markets.
This week’s European Union summit in Brussels has been roiling global stock markets as investors wonder and worry about the future of Europe.
As the fateful two day meeting approaches, here are recent developments:
1. Spain’s IBEX Index dropped another 1.4% today
2. Italy’s FTSE Mib Index fell 1.1%
3. Stoxx 50 and FTSE 100 posted marginal losses for the day
4. Spanish bond auction of short term treasury bills (3 and 6 month) saw yields rise with the 3 month coming in a 2.4% compared to 0.85% last month and 6 month yields almost double the May rate.
5. Rumors abound that Moody’s is going to downgrade Spain’s sovereign debt to junk status. This comes after yesterday’s downgrade of 28 Spanish banks by Moody’s.
6. Credit default swaps on major Spanish banks have leaped higher as investors fret over the banks’ and country’s solvency.
7. Spanish bond yield credit spreads compared to German bunds widened sharply.
8. Angela Merkel remains opposed to any shared German debt liability and Reuters reported that she told a meeting that she doesn’t see total debt liability in her lifetime.
9. The Eurodollar fell again today to $1.2489
10. European Council President Herman Von Rompuy issued a working document for this week’s summit that further scaled back plans for moving the Union towards more fiscal and political integration European Council Report.
Von Rumpuy’s report discussed proposals for more supervision, a Europe wide deposit insurance plan, integrated budget plan, more Parliamentary coordination between the countries of the European Union.
However, the report amazingly lacks any time line for implementation and, instead, concludes with:
From the report: Further work is necessary to develop a specific and time-bound road map for the achievement of the genuine Economic and Monetary Union. A report could be submitted to the December European Council by the President of the European Council in close collaboration with the President of the Commission, the President of the Eurogroup and the President of the European Central Bank. There will be regular and informal consultations with the Member States and the EU institutions. An interim report could be presented in October 2012.
Europe ETFs didn’t like today’s developments:
iShares MSCI Spain Index (NYSEARCA:EWP) -1.1% at mid-day New York time. The ETF is down more than 20% from April’s recent highs.
iShares MSCI Italy Index (NYSEARCA:EWI) -0.2%, down more than 20% since April’s recent highs.
CurrencyShares Euro Trust ETF (NYSEARCA:FXE) -0.1%, down 6% from April’s recent highs.
U.S. stock indexes have, of course, also been reacting to news from Europe. The S&P 500 (NYSEARCA:SPY) is up 0.4% in mid-day trade, along with the Dow Jones Industrial Average (NYSEARCA:DIA) climbing 0.16%. However, the S&P 500 (NYSEARCA:SPY) is down more than 6% from April’s recent highs and the Dow Jones Industrial Average (NYSEARCA:DIA) has lost more than 700 points, approximately 6% in the same time frame.
Bottom line: So what will happen this week in Brussels? Nothing. And so the big question is, “will markets tolerate yet another summit wherein no solutions are addressed?” Judging from recent market action outlined above, one can conclude that the patience of global markets is growing thin.
Click here to learn more about John’s book and for a free membership to Wall Street Sector Selector
