Morning Meeting: Lack of Direction in Eurozone Policy.

Good Morning.

Standard&Poor cut to one level above junk Spain's debt rating due to mounting economic and political risks as the government considers a second bailout.

The nation's long-term rating was lowered two levels to BBB- from BBB+ with a negative outlook, S&P lowered the short-term sovereign level to A-3 from A-2. The rating company said:

The negative outlook on the long-term rating reflects our view of the significant risks to Spain's economic growth and budgetary performance, and the lack of a clear direction in euro-zone policy. The deepening economic recession is limiting the Spanish government's policy options.

The sentence: lack of a clear direction in euro-zone policy, will be really hard to be digested by Eurozone policy makers therefore we need to expect a reaction. The yield on Spain's 10-year benchmark bond closed at 5.78 percent yesterday, compared with a record of 7.75 percent on July 25, a day after Spain signed a memorandum of understanding awarding it a credit line for its banks.

The euro slid against most of its major peers and fell 0.06 percent to $1.2866, just above Wednesday's low of $1.2835, its weakest level since October 1.

Yesterday's Federal Reserve Beige Book report on economic activity showed that the  U.S. economy “expanded modestly” in late August and September, with housing becoming a bright spot and manufacturing somewhat improved. In the August report words used to refer to the US economy expansion pace have been “expanded gradually”. Some commentators said that the Beige Book in September was not as positive as those earlier in the year, but you know what, the best commentator is the market:  the DJIA closed 0.95% lower to 13,345.00, the S&P500 0.62% lower, the market picture comments itself :the market was unable to find any form of support in the Beige Book.

Asian markets followed their US counterparts: the Nikkei fell 0.61% to 8,544.21, extending the previous session's 2% drop, as Japan reported today its first drop in core machinery orders in three months, core orders in August fell 3.3%. The Shanghai Composite slip 0.26% to 2,114.51 but Hong Kong's Hang Seng Index shook off losses to traded 0.24% higher helped by Chinese banks and infrastructure plays on expectations of more government support.

South Korea's Kospi declined 0.95% to 1,929.78 after the Bank of Korea cut interest rate by a quarter-point to 2.75%, as widely expected, in response to softness in the domestic economy amid a weakened global outlook. The Korean market behaviour this morning supported what we wrote yesterday in our European Closing Thoughts: at this point it looks like additional monetary-policy easing in the US and other countries were no longer a sufficient catalyst.

On the commodity side Gold for December delivery traded 0.01% higher to 1,765.60$ reflecting the risk off mode although analysts are skeptical on the precious metal future.  Crude for November delivery rose 0.07% to 91.31$ as rising tensions in the Middle East stoked supply fears.Turkey's warning that it will respond with greater force if there is further cross-border firing from Syrian forces battling rebels near the frontier has added to worries over instability in the Middle East.

At this point we have all the informations to prepare our game plan: our short stance is still in place, as per yesterday Morning Meeting we know what can turn the market around.

In Europe the ECB monthly report will be published today,  in US:  the macro agenda is pretty thick with the jobless numbers under the spotlight. A long day is ahead of us: let's get ready.

Have a great one.

Originally posted at www.77sigmatrading.com