In a relatively low volume day, market action was more or less at a minimum. The S&P 500 was essentially flat, bumping up a smidge of 0.01%. The Euro against the dollar is $1.31/Euro and the 10-year Treasury dropped to 2.01%. In commodities, gold is still off its high sitting just above $1,600 while oil broke above $100.
A sign of fear in the European banking system, banks deposited over $535 billion with the ECB, a record amount. Despite efforts by the ECB to boost liquidity and spur lending, many financial institutions still view lending as much riskier than camping their money with the ECB.
Not only will this hurt the credit market, but businesses of all sizes will feel the hurt as well. Although Europe is reaching deep into its toolbox, finding the right tool to solve its financial woes is becoming increasingly difficult.
The outlook for Spain isn’t too hot as the Spanish economic minister forecasted negative GDP growth for Q4 2011 and Q1 2012. With unemployment above 20% and a fragile banking system along with deep fiscal cuts setting in, Spain better brace for very hard times.
Italians are also feeling the pinch as well, sitting on the sidelines this holiday season as Italian retailers had their worst year in 10 years. With austerity kicking in and individuals adjusting their expectations accordingly, even if Italy makes it out of the debt crisis, it will enter a long period of economic stagnation.
As of now, I just don’t see great investment opportunities in international ETFs with heavier European exposure. The economic fundamentals and debt overhang simply fail to support any notion of a transition into a bull market scenario.
On the home front, there are mixed economic signs. The Case-Shiller Index indicated that home prices fell in 19 of 20 major cities surveyed; a 1.2% drop nationwide in October. However, consumer confidence in December was higher than expected. Next month’s retail sales figures will really tell us whether or not consumers came out en masse for holiday shopping.
I don’t anticipate major movements this week as the holiday spirits slowly fade away. But once the New Year rolls around, I’m highly confident that the negativity surrounding Europe will once again enter the market sphere.
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