October 3, 2011 - Mixed Messages from Europe
On the first market day of the 2011 fourth quarter, news is mixed as the EU continues to struggle with a viable solution to Greece's budget issues, and to avoid broader related weaknesses. In Greece over the weekend, the country's government announced that debts will be about 173% of GDP in 2012; the deficit will decrease by just under 7% an amount in excess of the agreement with international bailout creditors. Greece's 2012 budget includes detailed spending cuts that will result in thousand of government servants losing their jobs. Greece relies on period payments from eurozone countries (about $150 billion). Greece will run out of funds in mid-October without the next eurozone payment. Soc Gen stock values have failed (recall French banks combined are Greece's largest creditors), as is Dexia, the municipal lender rescued by France and Belgium in 2008.
Separately, the U.S. Treasury is increasing capabilities to monitor EU banks' cash flows and intra country transfer payments. This increased analysis is being undertaken so to enhance the transparency of monetary conditions, and help safeguard financial stability
The U.S. Dow, S%P, and NADQ indices are down at a blended rate of about 70 bps, and heading into the U.S trading sessions today, virtually every equity futures index was down, as are the markets now open around the world; the Dow and S&P index futures were at a negative 62 bps at 840a est. Additional news impacting today's sentiment was a decrease in August in U.S. manufacturing and construction. Oil prices and gasoline prices are stable and are not forecasted to increase measurably in 2011 Q4.
Despite all of the above, the U.S. markets are relatively flat, which arguably demontrates a stubborn desire to ignore present circumstances.