Will Europe Take The Spotlight To End The Month Of July 2012?
Europe is back in the news taking attention away from U.S. earnings and economic data. Spain’s 10-year note yield is above 7 percent and this has caused markets to become more volatile in the short run even though Spain will be getting a significant bailout package. The weakness created by the euro stress syndrome that has been lingering for two years has been a source of buying opportunities for those looking to get equities at a discount.
Federal Reserve Bank Chairman Ben Bernanke has signaled he will add more liquidity to the banking system if the U.S. economy deteriorates so buying equities without paying for a Bernanke put premium can occur when markets look back to Europe. We believe U.S. equities price trends that were negative last week could turnaround by the next few days or extended bearishness will take over and upside potential will be dampened.
We are watching Spanish bond yields, the dollar versus the euro and the financials to see if the markets are in short-term turnaround mode. Oil and other commodities have risen in the last few trading days but we don’t believe it’s a sign of demand growth and could be based on geopolitical concerns. We are also watching commodity prices closely due to the drought in the U.S. and corn prices.