This weekend was some hot fun watching Washington sweat over the debt ceiling wasn’t it? Treasury Secretary Tim Geithner rolled out some scorching language to let Congress know how he felt. “Catastrophic damage” as a description of things to come if we fail a debt payment sounds extreme, but then again when was the last time the most important economy on the planet nearly collapsed financially. Oh, right, it was less than 3 years ago… my bad.
Speaking of collective efforts to forestall catastrophic contagion, the Europeans continue to take their sweet time, relying more on “how bad does the market think this could get?” rather than “let’s not give markets anything more to worry about.” Case in point, the euro continues to break down, breaching some support at $1.41 to the dollar and getting ready to take out $1.40 as technical sell programs kick in. I wrote last month that the euro was a sell on any rallies above $1.45 because I thought the top was in at $1.49. So don’t be shy, get in there and sell! All kidding aside, as goes the “barometer of risk appetite” that I call the euro, so too other asset classes like stocks and commodities, at least in the short run.
And while Greece burns and Spain’s risk premium vs. Germany on 10-yr debt rose to a record 300 basis points this morning, talk is that the eurozone bailout may have to be doubled to 1.5 trillion euros to handle the unfolding debacle in Italy. All the back room talks among central bankers and finance ministers for the past few months must finally becoming to the conclusion that Greece will indeed default on some debt to get this chapter of the crisis over with and build a fresh start.
Other than Alcoa (AA) kicking off Q2 earnings season today after the close, we’ve got a good amount of data points for the market to pivot off of this week. Trade numbers and the FOMC minutes are released Tuesday, while Ben Bernanke begins two days of testimony before both House and Senate Congressional committees Wednesday in his semiannual addresses on monetary policy.
Happy Monday All! And if I sound to be making light of these situations, know that I think the American economy is doing just fine and the recovery will keep humming. We knew we had to work through these sovereign debt issues sooner or later, and we might as well do it while corporate earnings are strong and stocks can handle the emotional volatility.