European Closing Thoughts: The Balance of Power

Good afternoon today's closing thoughts were published earlier due to a number of meetings we are going to have later in the day.

In the MidSession Review we pointed out that today's job numbers had the power of balance between buyers and sellers, as a matter of fact disappointing jobless claims sent markets lower right after the S&P500 posted its biggest three day gain in almost six weeks.

Jobless claims increased by 46,000 to 388,000 in the week ended Oct. 13 from a revised 342,000 the prior period that was the lowest since February 2008, Labor Department figures showed today in Washington. The median forecast of 49 economists surveyed by Bloomberg called for a rise in claims to 365,000. According to a Labor Department spokesman the rise reflected an unwinding of adjustments for seasonal swings at the start of a quarter.

In a separate reading the Federal Reserve Bank of Philadelphia's general economic index rose to 5.7 in October from minus 1.9 in September, the median forecast by Bloomberg was for an increase to 1. At the same time the Conference Board said today that the US economy is “fluctuating around a slow growth trend” as it reported that its leading economic index rose 0.6% in September after declining a downwardly revised 0.4% in August. A prior estimate for August pegged the decline at 0.1%.

The market picture after economic data were released showed the S&P500 0.10% lower to 1,459.49, the DJIA 0.18% lower to 13,532.40 and the tech Nasdaq 0.62% lower to 3,084.87.

In Europe: the Stoxx50 fell 0.10% to 2,567.29; in the regional benchmarks space the German Dax rose 0.40% to 7,424.31 while Spanish Ibex fell 0.59% to 8,080.10 and the Italian Ftsemib traded 0.80% lower to 16,103.49.

Just an update: our Morning Meeting today pointed out to the fact that Spain could possibly face its worst case scenario, let me give you an update: Bad loans as a proportion of total lending jumped to a record 10.5 percent in August from a restated 10.1 percent in July as 9.3 billion euros of loans were newly classified as being in default, according to data published by the Bank of Spain on its website today. How long before the 1% probability will become a 50%/80%/90% probability?

The Philly Fed helped European markets to erase part of earlier losses, but attention in Europe is all for the European Council meeting that will take place later in the day with analyst expecting little progress on how to solve the region's debt woes. By the way looking at the common currency behaviour in the past few days it looks like someone placed a bet on positive news flow coming out from the meeting.

Talking about currencies the euro lost ground versus the dollar trading 0.24% lower to 1.3087$, the ICE dollar index rose 0.19% to 79.23 up slightly from 79.022 in North American trade late Wednesday. A stronger dollar sent Crude for November delivery 1.12% lower to 91.10$ a barrel on the NYMEX. The commodities dilemma is screaming for an answer: why Oil did not react to Chinese data, why it did not react to the Philly Fed?

Gold was under pressure too today, it traded 0.57% lower to 1,743.00$ an ounce on the Comex.

At this point we need to understand what is hidden behind “the commodities dilemma”, we are on the sideline waiting headlines coming from the European Council to crush the tape, we will not react on the news but we will use to work out our investment hypothesis.

Have a great evening.

Originally posted at www.77sigmatrading.com