Market Snapshot 12/9/2011

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The EU summit meeting was an all-nighter, the result seems to be so-so. The summit ended with optimism that the Union is moving closer to fiscal union whatever that actually means. The region’s leaders boosted a rescue fund and tightened budget rules to counter the debt crisis. European Central Bank President Mario Draghi declared the results of the EU talks as a “very good outcome” a day after he damped expectations that such a deal would prompt the ECB to step up its bond-buying operations. This morning the ECB was said to buy Spanish and Portuguese government bonds. The ECB is focused on reviving bank lending and yesterday cut interest rates, offered banks unlimited cash for three years and loosened collateral rules for loans. The summit added 200 billion euros ($267 billion) to their crisis-fighting capacity and toughened anti-deficit rules.

A huge amount of debt held by Europe's banks is coming due in the first six months of 2012; 1.1 trillion euros of long- and short-term debt in 2012, with about 519 billion euros of Italian, French and German debt maturing in the first half. European banks have about $665B of debt coming due in the first six months. The summit yesterday has taken near term concerns of a bank failure in Europe off the radar for the time being but as has been the case for two years, the meeting while considered a success, actually didn't change much. More talk ending in another round of optimism will likely in the end be another disappointment. Interest rates in Italy and Spain increased today even as the ECB was said to be buying bonds. Measuring the meeting from the perspective of investors so far, suggests it was only a baby step that isn't likely to speed up the process of saving the EU; the US bond market unchanged this morning, stock indexes better after the DJIA fell 198 points yesterday.

Europe's economic outlook is not good, the region's economy isn't likely to improve and more likely will worsen over the next year. The debt problems still so large that unless there is a huge infusion of cash to the debt ridden countries, debt defaults and potential bank failures are more likely than not based on the current outlook. Unless the IMF and the G-20 anti up the ECB does not the firepower to cover banks and debt defaults. Meanwhile Germany continues to resist most attempts to increase available funds until there is a fiscal outline where countries submit to the EU the authority over their own fiscal measures, a most difficult measure to pull off.

At 9:30 the DJIA opened +65, the 10 yr note unchanged from yesterday and mortgages prices down 2/32 (.06 bp).

Earlier this morning at 8:30 the Oct US trade deficit was at -$43.5B a little better than expected; no reaction in the markets. At 9:55 the U. of Michigan consumer sentiment index, expected at 65.1 frm 64.1 increased to 67.7, the 12 month outlook at 64 frm 52 and the expectations component 61.1 frm 55.4. The better sentiment added to the equity market improvement this morning.