This morning the U.S. government reported that more jobs were created last month than estimated. Economists’ guesses going into the report were for an increase of 180,000 jobs. The actual report showed an increase of 290,000 jobs. The initial reaction by traders was positive for the stock market while yields popped sending Treasury Bonds lower. This reaction lasted for only minutes as traders quickly shifted their focus back to the sovereign debt concerns in the Euro Zone.
The Euro is trading higher overnight. This is helping to give global equity markets a boost, leading to a call of higher on the U.S. opening. Although the gains are mild compared to the tremendous losses taken on Thursday, they nonetheless reflect that there are buyers in the markets today. Volatility remains high as measured by the VIX. This indicates that the stock markets will be susceptible to violent swings throughout the day.
June Treasury Bonds which were the recipient of flight to safety buying on Thursday are trading lower overnight as conditions improved in the Euro and stock markets. This market is operating on a hair trigger at this time and traders are waiting to drive it higher as soon as there is a hint of any instability in the financial markets. As soon as positions are liquidated in riskier assets, the cash is ready and willing to move into the Treasury markets.
June Gold is trading lower this morning as fear buying has subsided. The weaker Dollar is not attracting any fresh buying which means bullish traders are taking a “wait and see” attitude. At some point during the day, traders will reestablish gold’s relationship with the Dollar. At this time it is unknown as to when they will do it.
June Crude Oil is trading steady to better. The near panic selling which has hit this market throughout the week seems to be subsiding as traders attempt to bring stability to the markets early this morning. The charts indicate that crude oil is going to take its cues from the Euro today so a stable Euro is likely to provide the support which could lead to a strong short-covering rally.
The Euro has stabilized overnight. We are still looking at very low prices, but not seeing the hard selling pressure like we have seen. Just because the Euro is taking a breather doesn’t mean that the problems are going away at this time. The Euro is expected to continue to face tremendous selling pressure as the sovereign debt problems move from country to region to globe. Restructure, cheap loans.
One of the most serious issues facing the Euro is the lack of clarity and support from the European Central Bank. As stated several times before, the Euro Zone is a unique organization and the Euro a unique currency. The EZ is a made up of countries using one currency but keeping separate balance sheets. Although it is a union of countries, the current problems have exposed the fact that there is not much unity. It is currently made up of a combination of wealthy countries and not so wealthy countries. With the European Central Bank calling the shots on interest rates, the individual countries are expected to take care of their own balance sheets.
The current problems in the Euro Zone are showing the world’s financial markets what can happen when contaminated loans on the country level can spread to an economic region then eventually to the globe. It seems that the only way to deal with this situation is to find a central organization that is at the pulse of the problem and has the means to attempt to fix it. This organization is the European Central Bank.
The ECB in my opinion has to act quickly and decisively at this time to stem the spread of the sovereign debt issues in its own backyard, the Euro Zone. The past two weeks demonstrate that just throwing money at the problem is not going to help this time. The ECB must first restructure Greece’s loans, and secondly it must make cheap loans available. This means it has to lend money at zero percent interest. Finally, the central bank has to start showing its support for Greece by purchasing its sovereign debt.
On Thursday, Jean Claude Trichet said that Greece will not default on its debt. Based on the trading action, it became clear throughout the day that no one believed him. For several weeks, traders have been asking for clarity. Yesterday’s plunge clearly demonstrated that mere words were not going to be enough to instill confidence in the Euro. Investors want to see aggressive action. They want to see that the ECB has a grasp of the situation and is willing to make aggressive moves to ensure the stability of the currency.
If the ECB doesn’t act fast, then look for the fear to move from the Euro Zone to the U.K. and Japan. Although U.S. banks no doubt have exposure to Euro Zone contaminated debt at this time, the ramifications are expected to worsen if something isn’t done right now to calm the situation. 
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