U.S. stocks fell on Monday as initial enthusiasm over a victory for pro-bailout parties in Greek elections was overshadowed by rising Spanish and Italian bond yields.
I admit that even though I did not commit publicly to a stand on where the market would go if Greece kept its collective nose on its face, I honestly thought it would take a joyous bounce in celebration of one more potential disaster averted. It occurs to me now that maybe I too fell victim (yup, that would be me) to the siren song the breathless media sings in such beautiful unison. Then again, to be fair, maybe I heard the tune I wanted to hear, which, by the way, is a truly common and prevalent mistake we humans make, and it is one we traders and investors can ill afford to make.
The markets clearly sense that, not only in Greece but in Spain, where borrowing costs are rising further into record territory. Spain’s 10-year yield touched a record-high 7.14%, and currency desks across the region that are being deluged with sell orders and taking the Euro/USD back to where it was before the Greek vote.
Yes, me thinks I need to give the market more credit, because one barely successful Greek election does not a fiscally sound Europe make, and it appears the market understands this. It appears the market desires something beyond an election in a symbolically rich but economically insignificant country. My ruminations here beg a question – what does the market want, aside from a magic bullet that will fix Europe today?
Lest we forget, just last week mere rumors of a ‘coordinated central bank action’ sent markets soaring, albeit only briefly. And with all of those gains now all but erased, the chance of another round of rumors (or even true actions) seems fairly likely.
Those rumors were floated preemptively, no doubt, medication put out to calm the markets in case the Greek people did cut off their collective nose. Nevertheless, the markets’ reaction to them last week brings us back to the idea of the ECB providing stimulus for the economically ailing countries in the EU. As well, we might as jump the Atlantic and look at the market’s desire to see the Fed throw more liquidity at the US economy.
Yes, perhaps I need to stop treating the market as if it is a reactionary child. Maybe it is more adult and aware than I think, because, in the end, unless Europe wants a global recession that could last for many years, it needs to stop crushing the weak in its midst and start helping them help themselves. I understand the need for more fiscal and political integration, but that takes time, a resource highly depleted and now scarce on the continent. The ECB (and Germany) needs to step up, stop worrying about inflation, and start worrying about how Greece and Spain can reduce their high unemployment. I think we will hear the rich G20 countries singing this tune in Mexico. We will also hear those countries add their own words to the song, words such as, “We too can help. We too need a strong economic Europe.” Okay, maybe my words are not so melodious, but the important thing is the tune. It needs to be one the market likes and can hum to. In the meantime, the US economy may not be singing, but the low hum is audible.
Confidence among U.S. builders ticked up this month to a five-year high, an indication that the housing market is slowly improving.
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