Why? Why are people seemingly so surprised that European PMI data proved more negative than expected today? The signs have been there for months regarding France, Germany, and the broad data. GDP numbers have not mustered anything in the way of positive momentum, yet the markets are acting as if this is the first they have heard about the Manufacturing and Services sectors souring. What will the ECB do now? Will they need a new script for Mario Draghi who has said he believes a recovery is in the cards come summer? Most likely, yes, yes they will. The E.U. continues to falter and the prospects for even worse news are directly around the corner. Polls from Italy show that Silvio Berlusconi will do well in the elections this weekend and show that a fractured Italian government will be put into place – one that will apparently not abide by mandates set out already by the vacating powers. The Sovereign Debt of Europe, particularly from the likes of Italy and Spain could see their yields tested from a complex web of bad sentiment.
Gold as of this morning has traded significantly lower breaking technical resistance. The precious metal is near 1567.00 USD as of this writing. The EUR is near short-term lows also, and before going into the weekend with another full day of trading ahead tomorrow may continue to see pressure. Friday will see GDP numbers and the Ifo Business Climate report from Germany, along with Retails Sales figures from Italy. Let’s be clear, Digital Markets Advisor is not cheering for the recession in Europe to get worse, but it is our job to highlight the risk to traders who are being fed a constant barrage of rather cheerful banter ‘that all is well’ from a well organized cauldron of politicians and appointed officials.
Simply put plenty of risks remain and there are big challenges ahead. Soaring debt, lack of growth, huge budget expenditures, and high taxes are just some of the problems facing Spain, Italy, and Greece among others. Corruption is also part of the mix, but that is hardly mentioned.
The U.S. will post a lot of data today, but the markets may continue to stay focused on Europe until at least early next week. The psychology of the market is at best neurotic during its good hours, but with the Italian election standing in the way investors seem ready to be even more paranoid. Traders could take advantage of this with short-term forays into various risk assets if they have deep enough pockets to let ranges and trends work in their favor. But this is a dangerous marketplace where a lot of money could be lost if volatility catches a trader by surprise.
The EUR looks vulnerable short-term. It has done very well the past couple of months and is still near its higher values. It is our opinion that developing news throughout next week could be more negative than positive for Europe concerning its political and economic cohesion.