With all the compelling news coming out of Libya, the Arabian peninsula and Japan, it’s been easy for investors to overlook the festering sovereign-debt crisis in Europe. But it may come back onto the radar this week, like tomorrow.
Our colleague Min Zeng penned the following missive:
The financial markets are shrugging off the turmoil in Portugal and Ireland today, yet Andrew Brenner, head of emerging markets at Guggenheim Securities, says these two could lead to more volatility in stocks and bonds Wednesday when Portugal’s legislators are scheduled to debate the budget plan. Brenner says Portugal’s main opposition party said they will not support budget cuts so if the budget isn’t passed, Portugal could be forced to ask for funding from the EU. In Ireland, the continued disagreement between Germany and Ireland over corporate tax rates continue to plague negotiation for possible interest rates reductions from the bailout funding for Ireland, he says.
The Journal has a story on Portugal’s budget dilemma. There were reports earlier this week that Portugal’s going to seek a bailout no matter what happens with this vote, but if the measures are rejected, it would force the nation to seek a bailout within a few weeks.
As an indication of how jittery European debt markets are, Ireland’s debt (junior debt, mind you) tanked after after a rumor went through debt markets that Allied Irish Bank missed a coupon payment. The rumors were denied, and the market calmed down, but Ireland’s 10-year bond yield was pushed up to 9.658%. They later fell to 9.278%, for whatever that’s worth.
It’s a good thing the Europeans agreed to that new, permanentbailout fund. They’re gonna need it.
Strong wire-to-wire gains for stocks, led by the energy sector as oil prices climb again, and by a beefy performance from industrial stocks.
The perception of an improving situation in Japan offered bulls some running room, even as conflict in Libya remains nasty and helps drive up oil.
Steep drop in existing home sales, and word that Portugal will likely seek a bailout both get shrugged off as well. Financial stocks gain, but are notable laggards, along with health-care sector.
Today’s big move comes as stocks recover from oversold conditions. Sustaining these gains will be the test this week. DJIA rises 178 to 12036, while Nasdaq Comp adds 48 to 2692. S&P 500 ends 19 higher at 1298.
Note that the S&P 500 closed in the lower part of a resistance band that some technicians note between 1297 and 1308. S&P Equity Research’s Mark Abeter said after running into all this overhead resistance, “we think the S&P 500 will drop back and at least retest the lows” of last week.
Mary Ann Bartels at BofA Merrill echoed that sentiment, noting that an uptrend since last summer’s lows was broken, and along with a break last week of 1270 “on big volume,” it suggests “at least a test of the recent low of 1249 with possibly the need to test second support at 1220-1170.”
Look, we get it. Markets like to rally. Markets like to rally on Mondays, especially on Mondays when there’s a big, juicy M&A deal on the table that gets everybody all jazzed up. Then add in some dry oversold tinder on a Monday after a couple of weeks of persistent sell-offs and this is what can happen.
The Dow is up roughly 200 points, back around the psychologically and technically key 12000 level. The S&P poked its head above 1300. The Nasdaq Comp is up 2%. It’s a risk-on day without a doubt, and investors are piling on.
Let’s keep a little perspective here. Maybe we’re missing something, but the day seems a little thin on “good” news, while stocks base their gains mainly on big M&A and oil marching higher again.
- For starters, the situation at Fukushima Daiichi remains dangerous. The level of damage still isn’t clear, how much melting down there actually was, and what the ultimate solution will be.
- Portugal, one of the nations that supposedly wasn’t Greece, is looking more and more like Greece. Reports are the nation may seeks a bailout by June at the latest, if not earlier. That’d make three European nations on the bailout register.
- The fight in Libya is looking murkier by the day, with what now seems like a hastily arranged no-fly zone putting the western powers into the conflict, without a clear goal or exit strategy. Crude oil prices are reflecting the uncertainly not only in Libya but across the Maghreb and Middle East, rising back over $103/barrel.
That enough risk for you? How about we drill down a bit further?
There were two things I saw last week that put the fear of God in me. Both came Wednesday. One seems to be improving; the other remains a wild card, and that’s why I bring it up.
That was the first time I saw close-up pictures of the mangled Fukushima Daiichi nuclear plant. The walls that contain two of the reactors are completely gone. The upper third is missing from another. Seeing those pictures, it was pretty obvious to me that a total meltdown was a very real possibility. Those pictures were worth more than 1,000 words, and every word was absolutely shocking.
The Fukushima 50 have had some success in stabilizing the plant as of Sunday, and I fervently pray they are ultimately successful. God bless their courage. Were that others were so dedicated.
The second thing caught my attention Wednesday was the yen’s frenzied spike just after 5 p.m. New York time. The yen, which had been strengthening since last Friday’s earthquake, suddenly broke through all resistance and spiked higher. Lightning fast. Straight up. It was a black-swan kind of thing. Shorts were forced to sell, and that only contributed to the rise. It was chaotic.
“I can almost guarantee you that a few (hedge) funds out there were hurt very, very badly,” Dennis Gartman, who edits and publishes The Gartman Letter, said via email. “No one ever escapes that sort of action entirely.”
I’ve had the feeling since last Friday that the ramifications of Japan’s nightmare are going to be larger than people initially suspected, and they are going to end up in places where people don’t expect, and in a world as tightly connected as the one in which we live, that increases the odds that one haywire event will have a cascading and destructive effect. Something like the yen’s sudden jerk has the potential to spark a global unwinding. It’s a scary thing to contemplate.
Posted by Paul Vignaon March 17, 2011 Geopolitical /
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The images that mollified the markets here in the states today were fuzzy ones of helicopters dumping water on the destroyed nuclear reactors at Fukushima Daiichi, and the statements that mollified the markets were vague assurances of progress in fighting that catastrophe.
There’s also been a general feeling that the area stricken by the triple calamities isn’t economically vital, and the market’s been banking on the idea that the nation’s output won’t be too badly crimped. So long as Tokyo’s okay things will be okay seems to be the general idea.
But the disruption to daily life in Tokyo is growing, and if daily life there is being upended, then the economic effects of the calamity can only grow. I was here on Sept. 11. Nobody fled New York City, even though many wanted to. Everybody worked through a nightmare. I have no doubt that the Japanese people will as well, but this idea that it’s a “well contained” calamity, to borrow a phrase, is starting to look just a bit silly.
Obviosuly the situation in Tokyo is nowhere near as dire as that in the north, but the capital is becoming a very chaotic place itself, as the FT’s Gwen Robinson makes clear in this post that provides a look at the mood inside one of the world’s largest cities, and one of the world’s three major financial centers :
The television showed images of enormous queues at international airports around Japan. Some people, unable to make reservations by phone, went to Narita or Haneda airports near Tokyo to try to buy tickets over the counter.
Train stations were also packed with people trying to head west, particularly expatriate families seeking to relocate to cities such as Osaka, Kyoto and Fukuoka near international airports.
In fact, one expat wife who was taking her children to Kyoto earlier in the week described the bullet train, normally half full with besuited Japanese businessmen and a smattering of other travellers, as a “rolling high-speed nursery,” packed with screaming kids and foreigners all fleeing Tokyo.
Stocks rally to break a three-day losing streak, soaring on gaudy gains in the energy sector, as well as strength in materials and industrial stocks.
The prior three sessions had shaved about 3.6% off the DJIA, so snapback comes as little surprise. But rebound seems more a function of calmer headlines from Japan, rather than an all-clear signal.
Oil gets frisky again, along with a swath of other commodities. Lower jobless claims, strong Philly Fed add to positive vibe. No economic data tomorrow, so geopolitical concerns likely to be key focus.
DJIA rises 161 to 11774, and Nasdaq Comp adds 19 to 2636. S&P 500 ends about 17 higher at 1273.72.
Sitting out the past week on vacation, one thing I was struck by is the vibe from Wall Street analysts, strategists, pundits, etc., that the stock-market pullback driven by the Japan disaster is just another buying opportunity. Just another chance to load up.
The sense of assurance in the voices of guests on CNBC, or in written missives, reminds me of the same widespread attitude in the months following the tech bubble bursting in early 2000. Every dip was to be bought, stocks were “on sale” and each sell-off just created another “buying opportunity.”
I admit to eventually buying into the logic myself, by picking up 50 shares of Cisco (CSCO) in an IRA in early 2001 after the stock had fallen more than 50% from its 2000 peak. How much further could a blue-chip tech darling like CSCO fall, anyway? Another 60% from where I bought it, that’s how far. Ten years later it still hasn’t recovered all the way.
Looking back, the bursting of the tech bubble seems like a brief rain shower compared to the mayhem in the global picture today. As Paul noted earlier, how can anyone say with reasonable accuracy that “the worst is over”? Simply absurd.
Another grabber while I was away was the Fed noting “that the economic recovery is on a firmer footing.” Maybe so. But how firm can it be if the committee, without a single dissenter, caps off the statement by saying it “continues to anticipate that economic conditions…are likely to warrant exceptionally low levels for the federal funds rate for an extended period”?
If things are firming so nicely, then why not cease with the QE2 and ease up interest rates a quarter or even half a point? Don’t hold your breath for that, citizens. The only thing on firm footing is Ben Bernanke’s loafer, pressing the liquidity pedal to the floor.
Well, it looks like Barton Biggs was right, for right now.
Biggs got a lot of publicity after declaring that the sell-off in Japanese stocks was overdone, and he’d be buying. Not sure if he meant he’d be buying right now –you’d think a savvy guy like him would’ve squared his positions before opening his mouth — but the Nikkei shot back up overnight, gaining almost 6%. This is being treated in most quarters as a near-revelation, and given the dire state of the news coming out of Japan, it can be forgiven if people seize upon some scrap of good news.
Food and gas supplies are rapidly running out in parts of Japan, leaving people not only in the earthquake-stricken northeast but also in Tokyo scrambling to grab what’s left on the emptying shelves at groceries and convenience stores.
Chief Cabinet Secretary Yukio Edano reported that supplies are being depleted not only in the evacuation zone around the Fukushima Daiichi nuclear-power complex but also in neighboring areas including Iwaki, a city on the northeastern coast.
There is going to be a lot of confusion in the days and weeks ahead, even months, and while guys like Biggs can afford to ride out almost anything, but mere mortals need to tread more carefully. The volatility, the swings in the market, have been head-spinning lately. The Dow appeared on the verge of collapse yesterday, then rebounded, posting only a moderate fall.
In case you missed it, here’s the late morning News Hub extra from WSJ.com, featuring an interview with nuclear physicist Kirby Kemper, and a break-down of the pressures on the market as Japan’s nuclear crisis grows.
I wonder how many more times in my life I’m going to have to say, “that’s the worst thing I’ve ever seen.”
“The time to look for the emergency aisles and where the exits are located is before takeoff, not after the wings fall off the plane,” Barry Ritholtz writes this morning at The Big Picture. He points to a Doug Kass list of calamities over just the past ten years, like the Sept. 11 attacks, Katrina, Haiti’s earthquake, and notes that these so-called “black swan” events occur much more often than we think, and it’s only common sense to be prepared for them.
But have we ever had so many all at once? The Japanese are suffering through three distinct disasters at the same time, the earthquake, tsunami and nuclear crisis. It is going to take them God only knows how long to get back to where they were Thursday, and anybody who blithely suggests the rebuilding will be a good thing because it will spur economic activity isn’t really watching what’s going on, and has a poor grasp of economics.
I don’t know about you, but to me, it feels like the world’s on fire these days.
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