In yet another flat day on Wall Street, the S&P 500 trudged forward only 0.20% with other indices following suit in terms of minimal price volatility. The VIX only rose 2.60% today in what has been a quiet week to say the least.
Meanwhile, the dollar remained unchanged against the Euro at $1.34/Euro while commodity action was relatively minimal. With the EU summit coming up tomorrow, markets will probably start making some larger magnitude moves once some concrete news starts coming out.
Ahead of the EU Summit, the G20 is planning on instituting a bailout fund via the IMF to aid Europe. The proposed plan is a $600 billion lending facility. Now that Germany has expressed discontent over combining the EFSF and ESM bailout funds, the Eurozone’s going have to start getting creative if it wants to get out this mess. The fact that there’s nothing resolute continues to leave me skeptical of whether the Eurozone situation can turn for the better soon.
A sign that last week’s coordinated central bank action to boost Eurozone liquidity were no long-term solution (European banks have already borrowed $50 billion), the ECB is now considering more ways to boost bank lending. Some of the ideas include requiring less collateral from banks, longer-term loans, and lowering interest rates. Although Europe worries about inflation, an interest rate cut is necessary to flood money into a starved banking system.
Not to mention, J.P. Morgan has significantly boosted lending to afflicted Eurozone countries. In the last 2 months, the bank has increased loans by 9% to PIIGS nations. It’s very apparent that Europe’s credit flow issues haven’t improved whatsoever and that drastic measures will need to be taken.
In the continuing spate of potential ratings downgrades, Standard and Poor’s is now going after more European banks. Major banks including Deutsche Bank, BNP Paribas, and Societe Generale, are now on CreditWatch negative. But markets don’t seem to care as has been the case this week with seemingly negative outlooks.
Currently, I’m waiting for the EU to unveil its plans over the next two days to get a better idea of where the market might be heading. Once that occurs, we can better determine whether to add more equity ETF exposure. Nevertheless, I’m keen on staying locked in to our majority ETF bond position for the foreseeable future.
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CURIOUS….”j.P. Morgan has significantly boosted lending to afflicted Eurozone countries. In the past 2 months, the bank has increased loans by 9% to PIGGS nations.” Why would J.P . Morgan do this? Is it a good investment? No. It is a very risky investment and in light of their current conservative outlook regarding lending, I doubt that it is in their interest to make such loans. However, if J.P. Morgan is nothing more than a “front” for the Treasury to pump money into Eruope and not have to show that Treasury is now involved in printing even more money(they don’t have) and trying to save the Eurozone without the approval of Congress or the American People.
Something to think about……
Interesting viewpoint indeed…
Ulli…