November 17, 2011 at 09:33 AM EST
Europe’s Follies Still Ruling Global Markets!
Thursday, November 17, 2011. 9.25 a.m. Governments around the world, and global markets, are fearful that as they are going Europe’s problems will drag the world into a serious recession. Yet they insist the problems are Europe’s problems and Europe alone will have to fix them if they are to be fixed? The country with [...]

Thursday, November 17, 2011. 9.25 a.m.

Governments around the world, and global markets, are fearful that as they are going Europe’s problems will drag the world into a serious recession.

Yet they insist the problems are Europe’s problems and Europe alone will have to fix them if they are to be fixed?

The country with the greatest financial strength and ability to help is China. Unlike European countries and the U.S., it does not have a huge government debt problem of its own, but is the world’s largest creditor nation. China hinted it and other major emerging market countries would be willing to provide additional funding to boost the size of the eurozone rescue fund (EFSF). But once eurozone officials announced the big rescue plan a couple of weeks ago, which included raising the size of the EFSF rescue fund, and approached China about it, China seems to have backed away from the thought.

The U.S. government continues to advise Europe that it needs to provide a major firewall of funding, and needs to convince global markets that it will do "whatever it takes" to prevent debt defaults by eurozone countries, much as the U.S. provided massive stimulus in 2008 and 2009 to rescue the U.S. from a financial collapse and slide into a depression.

But it says it’s Europe’s problem to solve, and at the G-20 summit two weeks ago the U.S. sided with the majority and the decision to provide verbal support while refusing to provide any additional funding for the EFSF fund, pushing off any decision on that until next year.

I don’t understand why it’s Europe’s problem alone and not the world’s if it’s threatening to bring the entire global economy down into recession.

But then, even eurozone officials responsible for the master plan that was designed to reassure markets, are undermining its chances of doing that with speeches and assessments that are scaring the markets again.

Yesterday, European Commission President Jose Manuel Barrosa warned that the eurozone now faces a "systemic crisis that requires an even stronger commitment from all, and may require additional and very important measures."

Yesterday, stock markets in Europe reversed from early gains to sharp declines when the Bank of England released its quarterly inflation report, but its governor added the comments that the BOE’s policy-makers expect the British economy to slow more sharply than previously thought.

And Credit Suisse released a research note in which it said, "The euro area continues to lurch unsteadily towards fiscal union and into recession."

And an executive board member of Germany’s powerful Bundesbank said in a speech in Frankfurt that the crisis measures adopted by the eurozone "are surely not the decisive steps to resolve the debt crisis."

And Germany and France, which had supposedly resolved their differences so the proposals could be approved and move forward, are now arguing over whether the European Central Bank should intervene in currency and bond markets in efforts to halt the rout in euro nation bonds. France, facing a possible cut in its AAA credit rating, wants stronger action. Germany, with its stronger economy and stronger bonds (its bonds acting as a safe haven), opposes the ECB taking a bigger role in resolving the debt crisis, German Chancellor Merkel saying yesterday morning that "The ECB doesn’t have the possibility of solving these problems."

No wonder debt worries are spreading further in the eurozone, bond yields now rising again in Greece and Italy, and the problem potentially spreading to France, Spain, and the Netherlands.

No wonder global markets remain in confusion and indecision, as a whole remaining in the going nowhere and volatile sideways trading band.

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Meanwhile, in the U.S.

Unlike in Europe, the U.S. economy continues to show signs that its first half slowdown has bottomed and a recovery of at least some degree is underway.

Added to all the positive reports we’ve been noting in recent weeks, so far this week the reports have been that inflation remains tame in the U.S. The Producer Price Index, measuring inflation at the producer level fell 0.3% in October, the largest monthly decline in 20 months. And the Consumer Price Index declined 0.1%.

Tuesday it was reported that Retail Sales were up 0.5% in October, bettering the consensus forecast of a 0.2% increase, and that the Fed’s Empire Sate Mfg Index moved into positive territory this month after five months in negative territory, rising to +0.6 from minus 8.5 in October.

Yesterday it was reported that the NAHB Home-Builder Confidence Index rose to 20 in November from 17 in October (and 14 in September). Although still at a pessimistic level, it has now risen 6 points in two months to its highest level since May of 2010 when the bonuses to home-buyers program expired. And Industrial Output was up 0.7% in October, stronger than the consensus forecast of a rise of 0.4%.

This morning it was that new weekly unemployment claims fell again, this time by 5,000 to 388,000. Housing starts fell fractionally in October down 0.3%, but permits for new housing starts surged up a big 10.9%.

But the U.S. market is also at the mercy of the situation in Europe.

That was clearly demonstrated again yesterday, when the Dow was down 150 points in the early going on the pessimistic assessments coming out of Europe, but then reversed to the upside after yesterday’s positive U.S. economic reports. The Dow had reached positive territory, up 15 points by mid-afternoon. But then came the news that Fitch Ratings Inc., had issued a warning that large U.S. banks could be hit hard, "greatly affected", if Europe’s debt crisis widens. The Dow immediately reversed to the downside again, plunging to close down 190 points (led down by sharp reversals in the bank stocks).

It was similar last night and this morning. Last night as I watched Asian markets mostly decline on European debt fears, Dow and S&P 500 futures were in positive territory.

But by this morning, European markets were down sharply, and U.S. futures had reversed to being down sharply, on reports that the Spanish government had to pay record yields at its bond auction this morning, escalating fears further that the crisis is spreading to larger eurozone countries.

But then, just as happened yesterday morning, this morning’s positive U.S. economic reports were released, and European markets came well off their earlier lows, and U.S. futures recovered.

But is the improving U.S. economy enough to take the U.S. market out from under the influence of the European situation, or was yesterday an indication that Europe still is the driving force on all global markets, including the U.S.

The U.S. market did break nicely out of its sideways trading band, but its rally stalled several weeks ago when the eurozone crisis re-emerged.

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As I said Tuesday, it is the intermediate-term and longer outlook that is important, but still. . .

Subscribers to Street Smart Report: There is an in-depth U.S. Market Signals and Recommendations update for you from yesterday and an important hotline update from last evening, on the Street Smart Report website. And there will be an in-depth Gold, Bonds, Dollar, Inflation report later today.

Yesterday in the U.S. Market.

A wildly volatile day. The Dow was down triple-digits at the open. It recovered and was up by 15 points mid-afternoon. And just as it looked like it was going to continue the recovery it reversed to the downside and plunged to close down 190 points, or 1.6% on the day. Surprisingly, through all that, trading volume remained light, with only 0.9 billion shares traded on the NYSE.

The Dow closed down 190 points, or 1.6%. The S&P 500 closed down 1.7%. The NYSE Composite closed down 1.6%. The Nasdaq closed down 1.7. The Nasdaq 100 closed down 1.8%. The Russell 2000 closed down 1.8%. The DJ Transportation Avg. closed down 2.0%. The DJ Utilities Avg closed down 1.4%.

Gold closed down $9 an ounce at $1,772.

Oil closed up $2.33 a barrel at $101.70.

The U.S. dollar etf UUP closed up 0.3%.

The U.S. Treasury bond etf TLT closed up 0.9%.

Yesterday in European Markets.

Markets in Europe began the day to the upside, gave up the gains and were down sharply on renewed eurozone debt worries, recovered significantly when positive economic reports were released in the U.S., and closed mixed. London closed down fractionally, 0.15%. The German DAX closed down 0.3%. France closed up 0.5%.

Asian Markets Closed Down Tuesday Night And Again Last Night.

The DJ Asia-Pacific Index closed down 0.5% last night.

Among individual markets:

Australia closed up 0.2%. China closed down 0.2%. Hong Kong closed down 0.8%. India closed down 1.9%. Indonesia closed down 0.6%. Japan closed up 0.2%. Malaysia closed down 0.6%. New Zealand closed down 0.1%. South Korea closed up 1.1%. Singapore closed down 1.0%. Taiwan closed unchanged. Thailand closed down 0.4%.

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Markets This Morning.

European markets are down quite sharply this morning. The London FTSE is down 1.5%. Germany’s DAX is down 0.8%. France’s CAC is down 1.2%.

Oil is down $1.42 a barrel at $101.17.

Gold is plunging $27 an ounce at $1,747 an ounce.

This morning in the U.S. Market:

This week will be a fairly heavy week for potential market-moving economic reports, including the Consumer Price Index, Retail Sales, New Housing Starts, and the Fed’s Philadelphia area Business Index. To see the schedule of the week’s reports click here, and look at the left side of the page it takes you to.

Tuesday’s reports were that the Producer Price Index fell by 0.3% in October, the largest monthly decline in 20 months, better than forecasts. And Retail Sales rose by 0.5% in October, also better than forecasts. And the NY State Mfg Index rose into positive territory this month after 5 straight months in negative territory, also better than forecasts.

Yesterday’s reports were that the Consumer Price Index declined 0.1% in October. And that the NAHB Home-Builder Confidence Index rose to 20 in November from 17 in October (and 14 in September). Although still at a pessimistic level, it has now risen 6 points in two months to its highest level since May of 2010 when the bonuses to home-buyers program expired. And Industrial Output was up 0.7% in October, stronger than the consensus forecast of a rise of 0.4%.

This morning’s reports so far are that new weekly unemployment claims declined by 5,000 last week, to 388,000, the lowest since last April. New Home Starts were down fractionally in October, 0.3%, which was stronger than the consensus forecast. And building permits for future starts surged 10.9% to the highest level of permits since April, 2010.

Still to come is the Fed’s Phila Business Index, which will be released at 10 a.m.

Our pre-open indicators, which were positive overnight, then plunged to quite negative this morning, have come well off those lows, now almost back to positive.

Our Pre-Open Indicators:

Our pre-open indicators are pointing to the Dow being down 10 points or so in the early going.

To read my weekend newspaper column ‘Gold Has Resumed Its Glitter!’ click here!

Subscribers to Street Smart Report: There is an in-depth U.S. Market Signals and Recommendations update for you from yesterday and an important hotline update from last evening, on the Street Smart Report website. And there will be an in-depth Gold, Bonds, Dollar, Inflation report later today.

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I’ll be back Saturday morning with the regular Saturday morning post, as usual later than the week-day reports, probably around 11:00 a.m. (This blog appears every Tuesday, Thursday, and Saturday morning!).

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