European Closing Thoughts 28/06/12

Today on the stage the EU-Summit in Brussels, where Euro-area finance ministers are holding their most important meeting since the crisis began 3 years ago. The afternoon session has been characterized by a comment made by German finance minister  who said that a report that Germany could be willing to move sooner than expected to accept shared liability of euro zone debt was untrue.

Stoxx50 fell 0.67% to 2,151.01, German Dax -1.48% to 6,136.52 , Italian Ftsemib and Spanish Ibex are the only regional benchmarks in the green respectively +0,42% to 13,358 and +0,59% to 6,706. It looks like investors are closing short bets on both indexes as just began the EU-Summit.

On European indexes weighted the negative performance of the Banking sector, after the Associated Press reported that four more banks were being investigated in a probe into manipulation of Libor rates. The matter has already been settled by Barclays PLC (-15.14%) with $452 million, among the banks being probed, UBS -2.81%, HSBC -2,67%, and Royal Bank of Scotland Group -11.71%. In US JPM is on the stage,  the stock tumbled 2.9% on a report that the ender's trading losses from credit derivatives may total as much as $9 billion.

US macros were pretty much in line with analysts expectations: Initial jobless claims came in at 386k vs 385k expected, while the US GDP  number met analyst expectations at 1.9%. But today skepticism is all over the market, as investors remained skeptic that European leaders would agree on a road map to solve the so called the “European Mess”.

Markets want immediate crisis mechanisms, just after the Italian parlament voted a new labor reform,prised by Fitch as we write, aiming to show to Frau Merkel the willingness to go towards a fiscal consolidation by the Italian government.  The focal points will be the European rescue funds,  they could be used to buy up sovereign debt and the introduction of shared debt liabilities in the currency union. As investors world wide already know these focal points have been turned down by Frau Merkel and the Bundesbank. Therefore the feeling is that there will be limited progress toward stemming the crisis.

The Eur/$ cross trades at 1.2434 -0,28% vs yesterday fixing since the mid session, as we said in the past few posts the meeting opened up with very low expectations, therefore there is room for positive surprise.

This is the reason behind the upside buying protection that is going on since the morning on European indexes, pushing the skew lower.

Stay calm and don't be fooled by the the comments made by European politicians, history is not on their side. Newswire have been fed by European officials with too many fake news.

Originally posted at www.77sigmatrading.com