Stocks on Euro Rumor Rubberband Go Up then Fall

An early morning rumor sent stocks and commodities, except Silver, to a gap up on the New York open yesterday.  Market players saw  French President Nicolas Sarkozy’s announcement that France and Germany had decided the economic fate for the rest of the euro zone by agreeing on stricter fiscal controls, euphemistically known as austerity.  The agreed upon package would be voted on by Friday.

The S&P500 index opened up 1.5%, or nearly 17 points on the news.  U.S. Treasury Bonds, Gold and Silver were all sold as risk trades were put on.   The market meandered around on low volume until after the COMEX close at 1.30pm when news hit the wire that S&P would be putting the entire Euro zone, including mighty Germany, on ‘credit watch negative.”  This usually precedes a downgrade of sovereign debt.  Removing a AAA rating from French and German bonds would have serious repercussions in the Repo market vis a vis their use as collateral.

Once rumor of the S&P report hit the ticker stocks sold off sharply but still ended up for the day.  The S&P 500 rose 1.0% to 1257.08 while the Dow Jones Industrials pushed away from the 12,000 level to close at 12,097.83, up 0.65%.  US Treasury Bonds caught a bid on the news and stabilized at a yield of 3.04%.  Gold ended the day off  $20/oz at $1728/oz while West Texas Crude futures held above $100 after hitting an intra-day high of $102.44/bbl to close at $100.62, down $0.37/bbl on very low volume.

Previous Post »  
Tags: , , , , , , , ,
Tom Luongo

About Tom Luongo

Tom Luongo is a professional chemist and self-taught economist who has been following and trading stocks for nearly 12 years. He has no formal ties to the financial industry and considers that an asset in his analysis of the interplay between monetary policy and capital markets.

Comments are closed.