The markets were hit hard last week on fears of Italy’s growing problem with the borrowing costs rising on their bonds. This lastest fear on Italy only adds to the fire of contagion and fear spread through the EU Region. Last week was the worst pre-Thanksgiving for our Stock Markets since 1932. Last weeks deep sell offs in commodities and stocks were driven by risk off trading aversion, due to the events in Italy and Greece.
The markets have been stuck in a pattern with bad news coming out of Greece and Italy, and other EU region countries sending the markets into a risk off mode. When the markets going into risk off mode, it leads to deep sell offs in our equity markets and commodity markets as well as hits markets around the world. Some fears of a China Slowdown, also rocked the markets last week. Worries that China is slowing down are fueling the fire that the Global Economy is on the brink of recession and headed for trouble.
This markets can turn though on a dime if the news and events improve overnight. It is now Sunday night, and the news out of Europe is that the IMF is preparing an emergency loan package for Italy in case things get really out of hand and they have the money they need to keep their country operating and to prevent a default on their debt.
This news is changing the market sentiment around the world, and is fueling a large surge in our equity futures. Our Equity Futures and commodities are rising on the news as traders go back on a risk on mentality with good news from this loan, and with a great sales number for our Retailers for Black Friday Sales.
I would urge traders to be cautious and to wait this out. One more piece of bad news out of Europe can send us right back into risk off mode and fuel another sell off.
For now it appears the market will go back and forth until there is either a huge effort that really stops the fears of the EU debt crisis such as a large Quantitative Easing program developed by the European Central Bank.
Until we get such a progam the markets will move in lockstep with what is going on out of Europe.
Beta Market Analyst