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Global stocks sell off as markets decide nothing positive will come out of today's European summit
05/23/2012 1:28 pm EST
Today in the run up to this evening’s summit of European leaders, global stock markets have been crushed by negative news. If the rally on Monday was a sign that bears and shorts felt that the risk was that something positive might come out of today’s summit, the sell-off today indicates that the risk is now on the other side and the market believes that this meeting will turn out to be thoroughly disappointing.
The French CAC index closed down 2.6% today. The German DAX index was down 2.3%. Sand the Spanish Ibex 35 was down 3.3%.
Let me count the negative news today.
- The Bundesbank said in a monthly report that a Greek exit from the euro would be manageable and urges European leaders not to cave on demands for fiscal austerity. Nobody thinks the timing of this report is anything other than intentional.
- The Belgian finance minister said, of course, European leaders have contingency plans for a Greek exit—anything else would be irresponsible. His statement follows hard on the heels of a denial from the Greek finance ministry that such contingency planning was underway.
- German Chancellor Angela Merkel, on her way to the summit, said that nothing will be decided today and repeated that European bonds, an idea floated by French President Francois Hollande, are unconstitutional under German law.
The whole adds up to a toughening of positions ahead of the summit. And it now looks quite possible that even those of us who looked for a vague promise of action at the end of the meeting could be disappointed.
The euro is down against the U.S. dollar by almost 1% to $1.256 as of 1 p.m. New York time. I think it has further to fall--$1.20?—which would, of course, mean a rising U.S. dollar and falling prices for commodities—oil to copper—and gold.
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