This past week was all about Angela Merkel’s Thursday affirmation of Germany’s commitment to do everything that it can to maintain the euro. Forget the part where she said this is nothing new, and forget that she’s maintained this stance for the past three years. It cheered the markets and gave them another excuse to believe that more monetary easing is just around the corner. Of course, you know my take remains that neither the euro nor the EU will be allowed to fail.
Monday, stocks in Asia moved little despite more bad news economic news—this time from Japan. Shares in Europe traded marginally lower while stocks in the U.S. ended flat on pathetic volume. Facebook faced a new hurdle that sealed its destined descent as more worthless shares would flood the market soon. By Tuesday, stocks moved up 0.75% in Asia and Europe on the panacea that any news (good or bad) is good. If it’s good, happy days are here again and companies will prosper. If it’s bad, the central bankers will ease.
The good news was that Germany reported a better than expected GDP. The bad news was that although Germany and France manged to avoid contraction in the second quarter, their progress was not enough to keep the EU as a whole from contracting. U.S. stocks celebrated briefly as strong July retail sales numbers boosted spirits (good news is good) but still whimpered to a flat close on low volume.
The most significant move of the day came from the 10-Year U.S. Treasury Bond rate jumping 4% to 1.72%. Also notably Facebook resumed its well-deserved decline—losing nearly 6% to again approach 20. Meanwhile the VXO climbed 6% but remained below 15.
Wednesday, stocks moved lower for no particular reason. Asia shed about 0.5%, Europe about 0.25%, and U.S. remained flat on low volume. The 10-Year U.S. Treasury Bond rate moved up over 4.5% to exceed 1.80%. Moving the other direction, each day this week the Spanish and Italian 10-year government bond rates drifted a bit further below their respective 6% and 7% thresholds. Adding to the perverse movement of the day, Facebook jumped back up 4%.
Asian markets Thursday moved in a schizophrenic fashion with the Nikkei blasting through the 9000 level and the Hang Seng falling below 20,000. Stocks in Europe continued the listless pattern of recent days in the U.S. until Angela Merkel made her remarks in support of the euro. Keep in mind she said nothing new, but this cherry-picked phrase lifted market sentiment as it reinforced Draghi’s vow to do whatever it takes to keep the eurozone from collapse.
Stocks in Europe and the U.S. then frolicked ahead about 0.75 on low volume. Bucking the trend, Facebook slid more than 6% to close below 20 as 271 million shares were added that could be traded publicly—diluting that pool by about one third. Let’s see…two thirds of 21 is 14. Miners caught fire rising over 4% while a the 10-Year U.S. Treasury Bond rate continued its ramp up closing at 1.84.
In a sure sign of stock buying madness, IBM once again broke through the $200 share price barrier, and VXO dropped to near 14 again. Friday, stocks in Asia followed through with the Merkel pep talk rally to log a 0.5% gain. The VXO fear index dropped another 5% to the fearless level of 13.42. That’s about as low as it’s been in five years. For the week, stocks rose about 1% while the 10-Year U.S Treasury Bond rate blasted upward 10%.
Filed under: Investment
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