Markets have followed an interesting pattern this week with huge gains followed by flat activity. The S&P 500 only dropped 0.19% and European indices minimally moved. The VIX merely fell 1.01% and commodities remained relatively stagnant while the dollar was virtually unchanged.
Though yesterday’s collaborative central bank aid provided a fleeting ray of light for markets, EU leaders are still budding heads over the ECB’s role. Merkel has been the most vocal in her opposition to having the ECB intervene in the bailout, advocating a hands-off approach and proposing instead that countries concentrate on getting their own budgets in order.
Nevertheless, ECB president Mario Draghi stressed the importance of stepping up to improve the fluidity of credit markets. With the EFSF lacking the necessary firepower to offer aid, the ECB might have to get its hands dirty more than planned. But will it be enough to save the Eurozone?
Seeing the amount of political friction, Sarkozy proposed EU treaty amendments that would make it easier to compromise during policy making by preventing countries from exercising vetoes. It’s clear that the EU’s inefficient political process needs some reworking if it wants to avert crisis in a timely manner.
A recently embattled Spain finally had some temporary relief as its auction of 3.75 billion Euros had higher demand than usual. Yet, one can’t sugarcoat the fact that Spain’s yields are still above the unsustainable 7% mark and that the country must solve its severe fiscal shortfall. Spain just might be one of the next pawns to fall.
On the other side of Europe, it remains to be seen if Greece will receive its next bailout payment. I’m afraid the EU needs to cut the cord helping Greece cling onto Eurozone existence.
As the global economic picture worsens, the IMF claimed that it would reduce its global growth forecasts. Regardless, the IMF is in a tight spot with governments desperately seeking outside financial assistance. In the overall European scheme of things, this Economist article highlights that the money is starting to run out.
Today may not have aroused panic fears or been a cause for celebration. But if this sequence of alternating days between surges and reduced volatility continues, the week may just end on an interesting note especially with the U.S. jobs numbers coming out tomorrow. Seeing as I can’t figure out the markets right now, I won’t be deviating from my strategy anytime soon.
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