European Closing Thoughts: It's a Nerve Game

Last month we asked if the housing market alone was able to support the whole economy, in our opinion the answer is no. For sure today's data offered some relief to both US and European markets.

The S&P/Case-Shiller 20-city composite posted a 1.6% increase in July, following 2.3% advance in June. For the third month in a row, all 20 cities in the index recorded prices gains. Although home prices have risen 1.2% over the past 12 months, they are still about 30% lower compared to the market's peak in 2006, the Case-Shiller index found.

The S&P/Case-Shiller was not the only good news, on a separate report the Consumer-Confidence Index increased to 70.3 in September, the highest level since February, from a revised 61.3 in August. A prior estimate for August pegged the level at 60.6. The Conference Board's barometer of consumer expectations rose to 83.7 in September from 71.1 in August and the present situation index increased to 50.2 in September from 46.5 in August.

Buoyant macro readings sent major equity benchmarks higher: the S&P500 rose 0.40% to 1,462.89, the DJIA added 52.65 points or 0.4 percent, to 13,611.57. The tech Nasdaq traded 0.45% higher to 3,174.89.

Longs were supported on the US opening bell by the president of the San Francisco Fed, who suggested the central bank was not done taking action to stimulate the economy. If a new round of QE is not enough give it a another “shot”, just to say.

Effects were much more evident in the commodity space where Oil (WTI) regained its path to north, trading 0.89% higher to 92.75$ a barrel and Gold rose 0.58% to 1,774.90$ an ounce.  The Euro rose versus the greenback to 1.2956$ or 0.19%, as further intervention will devalue the US dollar.

European investors were searching for something to get over nervousness. Do you remember what we said in the MidSession Review? “The question rising in the room today is: What will make longs worth to be kept?”

The answer is an headline saying:

Euro-zone governments have begun discussions about creating a central budget for the currency union aimed at smoothing over some of the region's economic divergences, after Germany indicated support for the idea, European officials say.

The problem is that several euro-zone countries including Netherlands and Austria are not in favor of setting up any kind of centralized budget. And for sure last week's bilateral talks didn't go into details, for instance on the size of the budget or even whether it could be implemented under the EU's current treaties.

As we said in previous posts a large amount of money is on the sideline waited to be thrown in European markets, and this headline offer the opportunity to put some money to work. The Stoxx50 rose 0.41% to 2,568.48, the German Dax edged 0.16% higher to 7,424.11. Southern European markets led the gainers with Spanish Ibex 0.45% higher to 8,175 and Italian Ftsemib 0.41% higher to 15,932.60.

Today we had an example of what we were talking about when we said that although we have a “short” bias is still too soon to short, it's a nerve game.

How long before investors will start looking at headlines like a simple and inexpensive way to support the market?

Trust is hard to regain, once it's lost.

Have a great evening.

Originally posted at www.77sigmatrading.com