Volatility Rises, Euro Falls As Investors Await Serious Resolutions From June 2012 EU Summit
U.S. equities fell today as investors waited to hear news from the June 2012 EU Summit being held this week. Volatility rose over 15 percent in early trading today as market participants turned negative on the EU Summit as no good news was leaked stating that a serious resolution was in the works.
The euro fell sharply as traders looked to short the European common currency expecting no solutions from EU leaders. We would be buyers on dips in the current environment as the euro fear trade is exacerbated in the short run. The EU Summit must produce a ‘real’ outcome that makes market participants comfortable the region won’t wait until the last minute to come up with a resolution for the debt crisis that has been dragging on for over 2 years now.
Financials, small caps and tech have led the market to the upside and the downside. We would look at these indicators before monitoring bond yields from Europe or oil, gold and the euro. We believe these benchmark sectors will rise in the medium run as investors realize Germany will be willing to change its stance on bonds or other measures such as more easing and added liquidity move markets higher. Last week the ECB announced they were willing to consider alternative forms of collateral and we expect to hear similar news that all possibilities are still on the table.