As you probably saw from yesterday’s Dow volatility, the markets are real unsettled, with respect to the global economy. Significantly predominating the news is the Euro situation, and the growing concern and belief that the economic “package” offered to Greece (implied to others, if needed) isn’t going to be enough. The scrutiny on Greece shifted first to other nations, and when they flinched, concern grew for global uncertainty.
The lower house of Germany’s parliament voted 390 to 72 today in favor of Germany’s share of the 110 billion-euro lifeline. But the markets are rattled, even with this news. And even with the affirmative vote, there are questions within Germany. But (correctly) they see no alternative — short of a dissolution of the Euro community back to independent countries. Perhaps best expressed is Finance Minister Wolfgang Schaeuble to lawmakers saying the aid package is essential for the euro’s stability and the entire EU’s future. “We have no better alternative,” he said. “Any other way would be more expensive and more dangerous.”
But, as you saw in the US stock market yesterday, people are on edge. The now-understood reason for the 1,000 point rout, was a “human error” of a too-large of a sale. What this probably means is this: Someone put in a buy order for $25 lower than market price, on a flyer. And someone (not paying attention) probably accepted a “sell at market” — accepting that unrealistic, $25 lower-than-should’ve-been order — thus registering a sale at a significant drop. Now, this kind of thing happens all the time, and usually they even drop that sale from the charting. But what’s significant to me is what happened to the rest of the market as a result of this. It points out to me simply how on edge the investment community is with regard to a position at this point. An error shouldn’t have triggered a 9% rout in the Dow. And that it did is indicative of the larger picture, to me.
All of this moved money from riskier (stocks, plus the whole of Europe) to US Treasuries and bonds. And the demand drove the prices up — and the interest rate yields significantly down. Now, from a market point of view, “safe haven” moves usually don’t last long, and unwind very quickly. But this may be more than a simply “blip” on the screen. It may take some time for the markets overseas to settle — and in the meantime, such angst will flow money to bonds, continuing to lower interest rates. There is no reason on the radar screen to move to lock today. –But expect volatility. A lot of money flowed into this condition yesterday — from a lot of nervous people. And it could nervously flip back and forth significantly before this is yet fully settled.
From a technical point of view, Treasuries and Bonds are “bullish”, and moving into an accelerating rally. (Bullish for Treasuries means bearish–down–for interest rates.) The technical turn points could see this yet go to near 3.0%: Technically, there may be 1-3 days of “corrective” action, but anything sustained under 3.5% will likely indicate lower yet. Indicator “turn points” are, anything under 3.3% will likely go to 3.2%, and anything over 3.55% will signal a reversal of recent trend toward a higher interest rate.
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