European Closing Thoughts 7/08/12

European indexes moved higher, with oil stocks providing support, as the broader market overcame a set of negative data and heavy losses for Standard Chartered Plc; in US the S&P rose above 1400 mark for the first time since early May (SPX +0.71% to 1,404.19), these moves were bolstered by expectations the ECB will act soon to contain the bloc's credit crisis.

A larger than expected fall in German industrial orders in June led investors to bet on a quick action from the ECB (as we pointed out in the MidSession Review).

In our view hopes are now feeding the markets, the proof: as soon as the Federal Reserve Bank of Boston President Eric Rosengren said the Central Bank should pursue an “open ended” easing program of “substantial magnitude” expanding its holdings of mortgage bonds and Treasury securities until it is satisfied with the health of the economy (Bloomber reported) the market skyrocketed without taking into consideration what the Dallas Federal Reserve president Richard Fisher was telling to Reuters: new steps by the Fed to stimulate the economy so close to a presidential election would be a mistake.

It looks like we do not have an agreement between Fed members, but this is something markets' participants are not looking at, because investors are now behaving as if they got blinkers infront of their eyes, they see only what they want to see. For sure the old saying do not fight the Fed has not been more actual, but sometimes we should be able to see all dice's faces.

While we are writing, we got one hour before the closing auction in Europe and Indexes are strengthening their gains:

Stoxx50 rose 1.63% to 2,438.43, German Dax rose 0.77%, with Spanish and Italian markets leading the gainers: Italian Ftsemib up 2.46% to 14,695.55 and Spanish Ibex up 2.01% to 7,195.70.

Italian 2 year government bond yields rose 2.83% to 3.123,  they were 8% higher in the morning session, while Spanish peers were flat to 6.748. The common currency rose 0.14% versus the greenback to 1.2418$, with Oil(Wti) 0.57% higher to 92.73$. Gold lost some ground it was down 0.11% to 1,614.40.

Hopes and fears govern financial markets, this is something we all know from our first trading day, what we should do tonight right after the closing bell, when we are not thinking through our market positions filters, is to measure our hopes, and we should ask ourself a simple question are these hopes sustainable? what are the odds of these hopes to be met?

Have a pleasant evening

Originally posted at www.77sigmatrading.com