[Chart courtesy of MarketWatch.com]
After yesterday’s big losses, markets edged up a little bit today although the overall story in Europe hasn’t changed in a day’s passing. The S&P 500 gained a modest 0.86% while the 10-year Treasury rate shot right back up to end at 2.06%. The dollar/Euro exchange rate barely changed, rising slightly to $1.36/Euro.
Luckily, risk tempered as the VIX fell 9.26% in the wake of yesterday’s massive surge. Nevertheless, we are still in risky territory and equity ETF opportunities are starting to become few and far between once again, despite our Domestic Trend Tracking Index (TTI) remaining in bullish territory by +2.35%.
Italian optimism crept back into markets today because of lower yields in Italy’s bond sale, although it’s likely that the ECB heavily intervened to keep borrowing costs from getting out of control. Nouriel Roubini’s latest piece drives home the point that Italy’s spiraling debt is a force to be reckoned with that can bring down Europe.
The fact of the matter is that Italy has its hands tied behind its back as it needs to spur economic growth but also institute austerity measures so its debt doesn’t get out of hand. Italy is stuck in its own cat and mouse game and Germany is not receptive to employ policies that would weaken the euro via quantitative easing and restore some competitiveness for Italy.
With Germany and France as the big economic players in the Eurozone, Italy is subject to their whims at the moment. However, Merkel and Sarkozy have to realize that the fate of the Eurozone depends on Italy’s financial stability, or lack thereof, especially as France is on the verge of a ratings downgrade.
Meanwhile, Europe hit another hurdle today as Eurozone members disagreed over bondholder loss provisions in the $680 billion European Stability Mechanism (ESM), a permanent rescue meant to succeed the temporary EFSF, providing emergency credit lines to financially afflicted countries.
In the U.S., the Department of Labor reported a decrease in unemployment claims. On the surface, this may seem to indicate labor market improvement, but until the unemployment rate significantly drops and the number of full-time hires rather than part-time or temporary hires increases, I believe the U.S. will be stuck in an economic quagmire.
We experienced another upward blip today, but that doesn’t detract from the fact that Europe is headed down a dark path fraught with political turmoil and a lack of agreement among Eurozone members concerning financial solutions.
We are in for the long haul, and are maintaining our bond ETF and cash position with only limited equity exposure as the safest bet for the time being.