MidSession Review: Searching for explanations.

Never a title was more appropriate: Mind the Window Dressing.

If you look at the market picture you would not believe, everyone in the market place is searching for explanations.

Here you go:

1. Quarterly rebalance by asset managers out of equity after strong quarterly performance.
2. The greatest flow is coming from banks reducing their balance sheet for window dressing purposes and reducing holdings of risk assets that have performed.

From the fundamental stands point of view: the market is trying to push Spanish bond yields higher to force the country to seek a bailout. Spain's borrowing costs rose back above 6 percent as optimism faded and new uncertainty crushed in the market after EU Commission announced it would be performing a detailed review of Spanish budget until Nov. In the mean time we are still waiting for the bank stress tests to be released and the country's rating review.

The climate of fear sent Madrid's Ibex down 1.29% to 7,741.10, the move was copied and amplified by the Italian Ftsemib, down 1.77% to 15,177.37. Southern European tensions weighted on the broader Stoxx50, down 1.33% to 2,472.67, wheareas limited impact on the German Dax, it traded 0.66% lower to 7,242.19.

France is also under the microscope as President Hollande presented his first annual budget, France's toughest in 30 years. To keep deficit-cutting promises France's Socialist government raised taxes for rich households and big business. According to documents presented at the weekly cabinet meeting today, the government expects its revenue from household income taxes to rise 23% next year, while revenue from business taxation is expected to rise almost 30%. The Cac40 fell 1.28% to 3,395.38.

As equities dropped, the common currency was left clinging to slim gains. The euro, which had fallen more than 2 percent in less than two weeks until Wednesday, was up 0.07% to 1.2923$ against the greenback.

Commodity markets were generally firmer. Oil (Wti) fell 0.13% to 91.73$ a barrel and a small loss in gold prices, it traded 0.07% lower to 1,779.30$ an ounce, put the metal on course for its best quarterly performance in more than two years.

In the mean time in US: the government reported consumer spending rose 0.5% and personal income climbed 0.1% in August, with the data largely as expected. The market is waiting for data later in the session to see if another read of consumer confidence confirms the Conference Board's number that came out earlier this week, when the market hit a post-recession high.

Will US macroeconomic data alone offer a parachute today?

For what it may concern our game plan as we said in the morning, we were keeping our short stance although waiting for the FESX 12-12 DJEurostoxx50 to give us an hint, hour first check level was the 2526 mark. The market was unable to make it as it plumped to 2460. At this point in time we need to be careful to Window Dressing buyers.

Originally posted at www.77sigmatrading.com