EmailJust like a Thanksgiving meal, there is a lot to take in today.
Starting with the turkey, Europe is in rally mode following reports the IMF is allegedly in the midst of organizing an aid package for Italy that could total as much as 600 bln euros. The curious thing here is that an IMF spokesperson has already denounced this speculation.
Moving on to the stuffing, Germany and France are reportedly pushing a plan to expedite a new stability pact for the eurozone that calls for closer fiscal integration. The curious thing here is that Germany still isn't supporting a eurobond.
Now, for the sweet potatoes, industry trackers have said Black Friday sales in the U.S. were up 6.6% from last year while total weekend sales increased 16%. The curious thing here is that the U.S. is supposed to be on a glide path to a recession, according to some pundits, and yet shopping activity after the holiday suggested there is an alternate universe out there.
For the cranberries (which your author finds distasteful no matter how they are prepared), Moody's is warning this morning that the goings-on in the eurozone leave the ratings of all related sovereign bonds at risk. The curious thing here is that this warning follows an S&P downgrade of Belgium on Friday, and yet the credit markets in the eurozone are feasting today on the notion that some grand solution -- whether it come from the IMF, Germany, or the ECB -- is baking in the oven.
Sovereign yields have come down noticeably today, although these indications are a bit like pumpkin pie. That is, they smell better than they taste. To wit, the yield on the 10-year Italian note is still above 7.00% (now 7.13%) ahead of a key auction tomorrow of up to 8 bln euros of Italian bonds.
Lest we forget the green beans, the OECD has cut its growth forecasts for this year and next, saying it now believes OECD countries will see growth of 1.9% in 2011 and 1.6% in 2012 versus its prior forecast of 2.3% and 2.8%, respectively.
The gravy here is that the U.S. equity market is indicated to open sharply higher. The S&P futures are currently trading 2.7% above fair value, leaving short sellers sitting at the kids table feeling a bit out of place.
After choking on last week's 5.0% decline, traders apparently have taken a gastroeconomic liking to the turkey and sweet potatoes as thoughts of the eurozone being saved and the U.S. not being in a recession are going down easily this morning.
Of course, like any Thanksgiving meal, there is a risk of overindulging on a good thing. What tastes good now is often the foundation for indigestion later.
The Italian bond auction tomorrow and economic data this week, which includes the New Home Sales, Consumer Confidence, ISM Index, and the November employment reports, have the potential to cause some stomach upset if they aren't filled with the preservatives that can keep the leftovers from the Thanksgiving meal tasting good in the days ahead.
Right now, though, the market seems to be enjoying what is on its dinner plate, hoping it won't need the bottle of TUMS that sits at the end of the dessert table.
--Patrick J. O'Hare, Briefing.com
Patrick J. O'Hare is Chief Market Analyst for Briefing Research, Briefing.com's institutional research service. To request a free trial, please email researchsales@briefing.com.
