Even Europe gives up …
Even the European equity markets give up today, selling off around 7% (!!!) on an US holiday … wow
We were not able to go that low last year on very bad news and more uncertainty, now … seemingly ready to have a bounce after 3 down weeks to get the year started, the market jumps off the cliff. China down 5%, India down 7% were the hardest hit. Then Europe followed suit taking the S&P Future within 1 point(!!!) of locking limit down!!!
WHY?
1. Asia sold off on rumours / sources saying, that Bank of China will announce a hefty write off on subprime. 8bln$ was the rumour, but(!!!) they reportedly hold a total of less than 10bln$, so let’s see.
2. French banks hit hard as late Friday an article quoting Mr. Noyer was seen as having said, that french banks BNP and Societe Generale would work on write-offs. So far they mentioned to be only marginally involved.
3. Downgrades on US bond insurers weighing on the market as people (pls. read here) don’t understand the reality there as Barron’s puts it.
4. Technical selling hits market as the August low in the S&P was taking out on Friday. Dax now smashed through its BIG support at 7130.
Conclusion: On a day without most US market participants off guard, markets make a downside break. On VAGUE rumours and NO FACTS!!! Confidence crisis!!!
The next days promise a lot of action as it will be interesting to discover the truth (see above) and see the reaction of the central banks in this situation (Do I hear a ONE-POINT rate cut by the FED???)
Looking at the long term charts, we are rather at the start of the bear market than at the end. But a monthly candle ends on monthend, not today, so I expect a sharp vola reaction to the upside any time soon. Then the picture will become clearer!
DON’T SELL NOW, BUT DON’T GET BULLISH AS WE CORRECT … It will take MONTHS to turn that ship around.
Tags: BNP, bond insurers, China, outlook, rates, Societe Generale, subprime
