Market Overview

European Stocks Down on Greek Austerity

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Austerity in Greece has dragged stocks lower as Greek Prime Minister Lucas Papademos agrees with political leaders in his country to cut government costs in accordance with the wishes of foreign creditors. The deal should be worth €130 billion (about $171 billion) for the Greek government.

According to the agreement, which is still in its early stages and not complete, the country will reduce its budget by 1.5% of the country's GDP in one of the biggest austerity moves to come from a PIIGS economy in recent memory. The austerity measures include wage reductions for public workers and efforts to make the country more competitive for foreign direct investment. Pensions and bank recapitazliations are also issues of focus for the new agreement.

That amount is a fraction of the country's total credit obligations abroad.

Stocks fell in European markets as the deadline for Greek debt looms. Credit Agricole (EPA: ACA) fell by 4% in morning trading, and Societé Generale (EPA: GLE) was not far behind with a loss of 3.81%. Most other European banks are down on the news, while futures on the S&P 500 were down slightly.

The early-morning fall continues the protracted volatility that has plagued Europe for over a year, as sovereign debt remains an uncertain and sensitive point for European economies. The internal agreement between Papademos and Greek leaders is tentative, so investors may be worrying that the deal will fall through.

ACTION ITEMS:

Bullish:
Traders who believe that the news will bode well for U.S. markets might want to consider the following trades:

  • Investment banks tend to reflect moves in Europe, so Goldman Sachs (NYSE: GS), JPMorgan (NYSE: JPM), and Morgan Stanley (NYSE: MS) should reflect the news, even if their investment in Europe is limited.
  • A European ETF such as the Dow Jones EURO STOXX 50 (NYSE: FEX) or the iShares S&P Europe 350 (NYSE: IEV) may become more affordable on today's news, so investors bullish on Europe for the long term might consider buying into them if they fall on today's news.

Bearish:
Traders who think that today will be a bearish day in America may want to think about some alternatives:

  • Shorting the above ETFs, or shorting Credit Agricole, Societé Generale, or BNP Paribas (EPA: BNP) may be in order.
  • If European drama is too much for your blood pressure, divestment from the continent may be in order. Some traditional banks have already made that move, with a turn to domestic opportunities. Bank of America (NYSE: BAC) and Wells Fargo (NYSE: WFC) have led the pack towards domestic conventional banking revenues, so a closer look at them may be in order.

Neither Benzinga nor its staff recommend that you buy, sell, or hold any security. We do not offer investment advice, personalized or otherwise. Benzinga recommends that you conduct your own due diligence and consult a certified financial professional for personalized advice about your financial situation.

Posted-In: News Global Trading Ideas Best of Benzinga

 

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