The broad markets went directly into a cautious mode on Monday. This as the weekend produced a surprise political drama in Europe with Silvio Berlusconi re-entering the power politic game. Bonds in Italy and Spain are now on the ‘watch list’ again as questions about budgets and austerity will certainly erupt. The EUR has managed to trade to the stronger side of its range, but still finds itself well within a known track and may continue to percolate. The German ZEW Economic Sentiment reading is due rather soon and it carries an expectation of minus-11.4. Data from Germany has taken on a rather dark tone the past few weeks and another bad performance today via the ZEW report would amp up talk of an impending German recession.
Trade Balance numbers will come from the U.S. today. However, the focus will be squarely on the ‘fiscal cliff’ talks in Washington D.C. that are continuing. Also the FOMC Statement from the Fed will be published tomorrow. Thursday will see Retail Sales figures from the States. So as yesterday came and went and traders essentially were left to ponder the direction of the markets for the remainder of the week, road signs will certainly come along the path that are supposed to give guidance.
The broad markets including equities have always been a mixture of optimism versus skeptics when it comes to speculation. The key is having a belief and well practiced philosophy when it comes to trying and take advantage of short-term movements. Risk management is a key ingredient. Being able to know when to get out of a trade is as important to facilitate as getting into a trade.
With major holidays only two weeks away, volumes will begin to diminish next week and investors will get a respite as they gauge their outlooks for 2013. Regulations appear to be only growing stronger within this current environment as politicians react in a populist fashion. China and Brazil will continue to be in the spotlight as they are watched for indications on how the broader health of the global economy is doing. And questions about risk versus preservation will certainly be an issue. Europe and the United States have major issues regarding debt and their ability to navigate troubled waters and because of this investors will seek alternatives too. Perceived safe havens such as the CHF (Swiss) and Gold will always get their headlines.
Expect current market conditions today to remain rather cautious. While traders would love to see a good bounce upwards and easy trends to contemplate, there are enough economic reports and the possibility of ill-conceived politics abounding to create a rather tumultuous week.