Ho Ho Ho:
The rally has managed to overlook appalling unemployment data on non farms Friday. The unemployment percentage crept up to 9.8% for November. This number came as a big shock to me given that this weeks ADP report and Challenger Job Cuts were better than expected. One possible explanation could be some number rigging for the Mid Term elections in the release of October's payrolls data. I would not think it to be an impossibility given the desperate situation for the Democrats prior to the polling.
Fed up with the Euro zone:
It seems that American investors want to forget about European woes for now and concentrate on the rally. Yesterday with the worse than expected data, markets saw a huge amount of dollar sell off immediately after the data release. The Fed probably had a big part to play in that to limit the downside for equities.The ECB had already put the Euro into an uptrend following aggressive bond purchases. This move has been a complete U turn on part of the ECB on their proposed alternatives for easing the fiscal troubles in the Euro Zone. Trichet had been denying the need for bond purchasing up until this last week, and the claims of the ECB can hardly be taken on face value now.
The total state of disarray in the Euro Zone is bordering on the comical now. Portugal and Spain are to be taken to the guillotines next year and it remains to be seen if bond purchases have a longer term calming effect on the markets. I have my doubts.
Standard and Poor's also managed to show their famously incredible foresight and declared that there might be a problem with Portugal and they are looking into a possible downgrade. Amazing! The fact that the Portuguese economy has been in trouble since the past decade because it hadn't been able to get its fiscal house in order before joining the Euro zone was of course not a cause for concern for rating agencies (Portugal was the first country to be threatened with sanctions by the European Commission for breaking the Stability and Growth Pact). I sometimes really fail to understand what exactly analysts at rating agencies sit and do all day, but that is probably a rant for another time.
In my opinion, the only way to save the Euro Zone from complete collapse would be to prop up Portugal's economy as much as possible, because if the risk of contagion spreads to Spain (after a possible Portuguese bailout which is highly likely), it will get too much to handle given that the Spanish economy is double the size of the Greek, Irish and Portuguese economies combined. Yields on Portuguese 10 yr debt has fallen slightly this week as a result of ECB's intervention in the bond markets but remains unsustainably high:
So what is the problem with the Iberian peninsula? What are the structural and cultural factors at play? Ill have a go at explaining the same in next weeks post. Until then, the ECB asset purchases should be interesting to watch over the coming week, and American markets will probably remain in a range near their highs unless there is some massive loss in confidence. The Yanks are trying desperately to hold on to the gains made over the past few months, and it would be foolhardy to think that there will be a correction because the fundamentals dictate it. Do not fight Santa!
PS...watch out for Crude, which has rallied all the way back to $89.44 a barrel. Optimistic analysts hope to see this rally continue into the next year and reach $100 a barrel. I suspect this might be heavily correlated with the demand from China in the coming year.
Fed up with the Euro zone:
It seems that American investors want to forget about European woes for now and concentrate on the rally. Yesterday with the worse than expected data, markets saw a huge amount of dollar sell off immediately after the data release. The Fed probably had a big part to play in that to limit the downside for equities.The ECB had already put the Euro into an uptrend following aggressive bond purchases. This move has been a complete U turn on part of the ECB on their proposed alternatives for easing the fiscal troubles in the Euro Zone. Trichet had been denying the need for bond purchasing up until this last week, and the claims of the ECB can hardly be taken on face value now.
The total state of disarray in the Euro Zone is bordering on the comical now. Portugal and Spain are to be taken to the guillotines next year and it remains to be seen if bond purchases have a longer term calming effect on the markets. I have my doubts.
Standard and Poor's also managed to show their famously incredible foresight and declared that there might be a problem with Portugal and they are looking into a possible downgrade. Amazing! The fact that the Portuguese economy has been in trouble since the past decade because it hadn't been able to get its fiscal house in order before joining the Euro zone was of course not a cause for concern for rating agencies (Portugal was the first country to be threatened with sanctions by the European Commission for breaking the Stability and Growth Pact). I sometimes really fail to understand what exactly analysts at rating agencies sit and do all day, but that is probably a rant for another time.
In my opinion, the only way to save the Euro Zone from complete collapse would be to prop up Portugal's economy as much as possible, because if the risk of contagion spreads to Spain (after a possible Portuguese bailout which is highly likely), it will get too much to handle given that the Spanish economy is double the size of the Greek, Irish and Portuguese economies combined. Yields on Portuguese 10 yr debt has fallen slightly this week as a result of ECB's intervention in the bond markets but remains unsustainably high:
So what is the problem with the Iberian peninsula? What are the structural and cultural factors at play? Ill have a go at explaining the same in next weeks post. Until then, the ECB asset purchases should be interesting to watch over the coming week, and American markets will probably remain in a range near their highs unless there is some massive loss in confidence. The Yanks are trying desperately to hold on to the gains made over the past few months, and it would be foolhardy to think that there will be a correction because the fundamentals dictate it. Do not fight Santa!
PS...watch out for Crude, which has rallied all the way back to $89.44 a barrel. Optimistic analysts hope to see this rally continue into the next year and reach $100 a barrel. I suspect this might be heavily correlated with the demand from China in the coming year.
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