December 08, 2011 at 09:34 AM EST
Will EU Act This Time Or Not?
Thursday, December 8, 2011. 9.25 a.m. The 27-nation European Union will begin its most important summit meeting yet on what, if anything, to do about the 17-nation eurozone crisis in in midst. Markets and analysts can think and talk of nothing else. It will be the EU’s 8th summit so far this year. We all [...]

Thursday, December 8, 2011. 9.25 a.m.

The 27-nation European Union will begin its most important summit meeting yet on what, if anything, to do about the 17-nation eurozone crisis in in midst.

Markets and analysts can think and talk of nothing else.

It will be the EU’s 8th summit so far this year. We all know the results of the previous seven, next to nada. But hopes are high that EU leaders finally realize the danger and will somehow overcome their substantial differences for the greater good.

However, their finance ministers met in a pre-summit meeting ten days ago, at which they were supposed to thrash out an agreement that their bosses would only have to sign off on at this weekend’s summit. But the finance ministers gave up and announced they were putting off any decisions for ten days. That is, until the summit meeting when their bosses can have a go at it. 

Rumors and opinions are rampant.

At a pre-summit meeting this week Germany and France reached an encouraging agreement on a major proposal, but the next day an anonymous German official said he was pessimistic of its chances of being accepted.

Late yesterday a dotcom in Japan reported that the G-20 group of developed global nations is considering adding $500 billion to the IMF’s eurozone rescue fund. That rumor sped around the globe and lifted the optimism in markets further, until an hour later when the IMF denied the rumor.

The rating agencies are in on the pre-summit activities and pressures. Yesterday, Standard & Poor’s placed the European Union’s triple-A credit rating on “Credit Watch with Negative Implications”, and warned it would complete its review as soon as possible after the summit meeting reveals its plans.

Stock markets have been surging up on optimism that a promising rescue plan will come out of the summit, but are becoming nervous as the time has arrived.

Even the panic spike up of yields on Italy and Spain’s bonds, has receded dramatically in recent days over hopes of meaningful results from the European Union summit. The yield on Italy’s benchmark 10-year bond rose above the 7.0% danger zone a few weeks ago, and continued higher to more than 8%. But with the optimism that the EU summit meeting will succeed, the yield plummeted back down to 5.9%, and Spain’s to 5.2%.

The nervousness is increasing this morning, the day before the summit begins. Markets were nervously optimistic for awhile this morning, especially after the European Central Bank announced it is cutting its interest rate by 0.25% to 1.0%, the record low it reached in 2009 during the 2008-2009 meltdown.

But now nervousness has returned and earlier market optimism has reversed after European Central Bank president spoke and seemed to back away from market hopes that the ECB would increase its eurozone bond purchases to also help alleviate the crisis.

Meanwhile, analysts and pundits are all over the lot with opinions and advice.

“If the summit yields a meaningful rescue plan expect stock markets to surge higher, and if the summit disappoints look out below.”

“It’s a clear case of having bought the rumor. So sell the fact even if the summit comes up with a great plan.”

“Don’t trust the markets’ first kneejerk reaction to the EU summit results.”

And so on.

This critical summit meeting comes at an important technical juncture for the stock market.

The three-year bull market in the U.S. continues. The intermediate-term rally after the big summer correction, the rally from its early October low, remains in place.

The Dow has also completely recovered from its 3-week mini-slide in November, and it has even broken fractionally above the potential resistance at its long-term 200-day moving average.

But not by enough to be a clear and confirmed breakout.

So it is at a juncture that confirms how important the EU summit meeting may be for the market.

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Since it’s impossible to time the market based on trying to guess what the EU summit will decide, and even if one could get that right, to then guess how the market will react, we will just continue to trust our technical indicators.

Subscribers to Street Smart Report: There is an in-depth ‘Global Markets’ update from Tuesday, and the regular in-depth U.S. Market update from yesterday, and a hotline from last evening, in the subscriber area of the Street Smart Report website. And later today we will have a new in-depth ‘Gold, Bonds, Dollar, Inflation’ update there for you.

Yesterday in the U.S. Market.

A mixed market as concerns rose and fell and rose again on expectations for the EU summit meeting this coming weekend. The Dow was down as much as 90 points at its morning low, but recovered to close up 46 points. But the rest of the market was mixed with almost no change by the close.

The Dow closed up 46 points, or 0.4%. The S&P 500 closed up 0.2%. The NYSE Composite closed up 0.3%. The Nasdaq closed unchanged. The Nasdaq 100 closed unchanged. The Russell 2000 closed down 0.1%. The DJ Transportation Avg. closed up 0.1%. The DJ Utilities Avg closed down 0.2%.

Gold closed up $14 an ounce to $1,746, now up all of $1 for the week so far.

Oil closed down 0.71 a barrel, at $110.57.

The U.S. dollar etf UUP closed down 0.1%.

The U.S. Treasury bond etf TLT closed up 0.4%.

Yesterday in European Markets.

Markets in Europe came down off earlier highs to close down some on the day. London closed down 0.4%. The German DAX closed down 0.6%. France closed down 0.1%.

Asian Markets Closed Down Some Last Night.

The DJ Asia-Pacific Index closed down 0.5% last night on nervousness about the outcome of the EU summit this weekend.

Among individual markets last night:

Australia closed down 0.3%. China closed down 0.1%. Hong Kong closed down 0.7%. India closed down 2.3%. Indonesia closed down 0.3%. Japan closed down 0.7%. Malaysia closed down 0.6%. New Zealand closed down 0.4%. South Korea closed down 0.4%. Singapore closed down 1.9%. Taiwan closed down 0.7%. Thailand closed down 0.3%.

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Markets This Morning.

European markets have given up earlier gains. The London FTSE is now down 0.4%. Germany’s DAX is now down 1.3%. France’s CAC is down 1.1%.

Oil is down $0.73 a barrel at $99.76.

Gold is down $17 an ounce at $1,723 an ounce.

This morning in the U.S. Market:

This is a very light week for potential market-moving economic reports, almost none, but including Factory Orders, the ISM Non-Mfg Index, and Consumer Sentiment. To see the full schedule of the week’s reports click here, and look at the left side of the page it takes you to.

Monday’s reports were that the ISM non-Mfg Index, which tracks the important services sector, declined some in November, to 52.0% from 52.9% in October. And Factory Orders fell 0.4% in October, about in line with the consensus forecasts. They were two of the very few disappointing U.S. economic reports of the last month or two. They follow last week’s very positive reports, which Goldman Sachs says was the best week of positive surprises in at least five years.

There were no reports Tuesday or Wednesday.

This morning’s only U.S. report was that new weekly unemployment claims plunged a much better than expected 23,000 last week, to 381,000.

In Europe the European Central Bank cut its interest rate by 0.25% to 1.0%, the record low it reached in 2009 during the 2008-2009 meltdown.

However, it still remains Europe, Europe, Europe, with the focus now on the important EU summit meeting this weekend and concerns about whether the EU nations will accomplish anything meaningful this time.

Our Pre-Open Indicators:

Our pre-open indicators are pointing to the Dow being down 50 points or so in the early going.

To read my weekend newspaper column ‘It’s Time To Dump U.S. Treasuries Again!’ Click here.

Subscribers to Street Smart Report: There is an in-depth ‘Global Markets’ update from Tuesday, and the regular in-depth U.S. Market update from yesterday, and a hotline from last evening, in the subscriber area of the Street Smart Report website. And later today we will have a new in-depth ‘Gold, Bonds, Dollar, Inflation’ update there for you.

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I’ll be back Thursday morning with the regular Thursday morning post, at 9:25 a.m. (This blog appears every Tuesday, Thursday, and Saturday morning!).

**** End of Today’s post*****

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