It started off so well: the day after the ECB said that despite a gargantuan 879 billion in bad loans, of which 136 billion were previously undisclosed, only 25 European banks had failed its stress test and had to raised capital, 17 of which had already remedied their capital deficiency confirming that absolutely nothing would change (conveniently the ECB reported that private sector loan issuance declined once again by 1.2% Y/Y), Europe started off with a bang as stocks across the Atlantic jumped, which in turn pushed US equity futures to fresh multi-week highs putting the early October market drubbing well into the rear view mirror. Then things turned sour.
Whether as a result of the re-election of incumbent Brazilian president Dilma Russeff, which is expected to lead to a greater than 10% plunge in the Bovespa when it opens later, or the latest disappointment out of Germany, when the October IFO confidence declined again from 104.5 to 103.2, or because “failing” Italian bank Monte Paschi was not only repeatedly halted after crashing 20% but which saw yet another “transitory” short-selling ban by the Italian regulator, and the mood in Europe suddenly turned quite sour, which in turn dragged both the EURUSD and the USDJPY lower, and with it US equity futures which at last check were red.
So here is where we are now in the markets: European shares fluctuate, currently down having just touched session lows with the travel & leisure and food & beverage sectors outperforming and banks, autos underperforming. Banks index falls having risen earlier on results of ECB stress tests yesterday. Brazilian stocks fall after Rousseff wins election. The Dutch and Swiss markets are the best-performing larger bourses, Italian the worst. The euro is stronger against the dollar. Irish 10yr bond yields fall; Spanish yields decline. Commodities decline, with nickel, corn underperforming and natural gas outperforming. U. S. Dallas Fed index, pending home sales, Markit U. S. composite PMI, Markit U. S. services PMI due later.
And while today attention turns towards the US pending home sales release and a host of tier 1 US earnings including Merck at 1100GMT and Twitter after-market, the biggest event by far takes place at 11:00 am when the Fed monetizes some $0.85 – $1.05 billion in 2036-2044 bonds, after which POMO, and QE3, are officially over!
This post was published at Zero Hedge on 10/27/2014.
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