Europe's sovereign debt crisis is bubbling up again -- as if investors don't have enough to worry about.
Stocks were relatively quiet Tuesday after Monday's big swing higher. The Dow [.DJI 12018.63
-17.90 (-0.15%) 
] finished down 17 at 12,018, and the S&P 500 [.SPX 1293.77 -4.61 (-0.35%) ] slid 4 to 1293. The defensive utilities and telecom sectors were the only Standard and Poor's industry groups in the green, on a day that Reuters reports was the lowest trading volume day of the year.
But in the euro zone, spreads on peripheral sovereign debt were trading wider and credit default swaps, which reflect the price of insuring debt, went shooting higher.
On Wednesday, Portugal's parliament is scheduled to vote on a new austerity budget, which opposition parties have said they will not endorse. Prime Minister Jose Socrates has threatened to resign if the budget fails, raising the prospect of a government collapse and an IMF bailout. The vote comes on the eve of an important European Union summit Thursday where leaders are expected to agree to programs aimed at the sovereign debt crisis, including strengthening of the emergency funding mechanism.
In the U.S., Fed Chairman Ben Bernanke speaks to the Independent Community Bankers of America convention at 12 p.m. ET. New home sales are reported at 10 a.m., and traders are watching for EIA oil inventory data at 10:30 a.m.
Investors are also watching events in the Middle East and Japan's efforts to solve its nuclear crisis. Egypt's stock market was expected to reopen for the first time since the government was overthrown.
On Tuesday, the U.S. Food and Drug Administration banned food imports from the area of Japan affected by the leaking Fukushima Dai-ichi nuclear facility, and Japanese press reports said the Japanese government estimates quake related damage at $185-$308 billion.
Euro Zoned
Ireland joined Portugal in the spotlight Tuesday as rumors, later knocked down, circulated that it would not meet its debt payments.
The dollar was just slightly weaker against the Euro [EUR= 1.4162 -0.0037 (-0.26%) ] (1.4199) and slightly stronger against the Yen [JPY= 80.90 -0.07 (-0.09%) ] (80.9061).
"To me there's a disconnect here in terms of what certain assets are telling us in Europe, when contrasted with the apparently unrelenting strength of the euro," said Michael Moran, Standard Chartered senior foreign exchange strategist. "There is a conflict. I think at some point there will be a convergence and ultimately I think the euro will be the casualty, but this could take multiple months to really play out."
Moran said the November high of 1.4282 is in play as the next level for the euro currency. "That is really the level people are gunning for now," he said. "...On the one hand the debt perception of the European periphery has arguably worsened over the last 12 to 18 months, yet the euro is strengthening."
Moran said failure of the Portuguese government would be a "fresh negative" for the euro, and the rumors about Ireland, which were propelled across world markets by Twitter, is a reminder that there remains structural issues in the euro zone. He added that the stronger message might be that this is a period of dollar weakening, rather than euro strengthening.
"There's two central pillars of support. One is Germany and its outperformance, and the other is the insistance from (European Central Bank President Jean Claude) Trichet that tightening is the best course of action," he said.
"If one take a macro view in the next six months, the euro does look a little too strong in that sense. But if you're a trader, especially over the last two or three weeks, you have to be cognizant that the momentum really has been with the euro bulls, and it's been very expensive trying to fade these moves higher in the euro. But I think there is some inconsistencies and conflict, which suggest sentiment might still have a glass jaw, but it's very difficult to really go against the under lying momentum now," he said.
Oil Drill
Oil was a big gainer on the day, with the May contract for WTI Crude [CLCV1 105.23
0.26 (+0.25%) ] rising 1.8 percent to settle at $104.97 per barrel, as traders watched the conflict in Libya and tensions in Yemen and Syria. Yemeni President Ali Abdullah Saleh refused to give in to opponents who demanded he quit, as he continued to lose support from one-time backers.
Traders are watching for EIA supply data, following the API's report that showed a 970,000 build in U.S. crude stocks, well below the 1.6 million barrel increase expected by analysts.
"It's a very nervous market.. If the wrong thing happens. it could take out the highs we knew in 2008 in a blink," said Ray Carbone, president of Paramount Options.
While oil rose in reaction to Middle East events, Treasurys slid, with the 10-year Yield rising to 3.334. Gone was the flight-to-safety bid of last week, when markets reacted to fears that Japan's nuclear crisis would continue to worsen.
"It's right now immune to any of the external forces. You've got the market trading momentarily on the Fed purchases. This week we had an onslaught of corporate pricings. So in the morning, you get the hedging of the product, and in the afternoon you get the pricings," said Jefferies Treasury strategist John Spinello.
There was $13.65 billion in investment grade corporates issued Tuesday, including most of a $7 billion 6-part trade for Sanofi-Aventis' acquisition of Genzyme. Dupont also came to market with $4 billion for its acquisition of Danisco, according to Thomson Reuters IFR. So far this week, $19.3 billion has priced, compared to just $6.85 billion last week as issuers held off a the Japanese and Middle East events dominated market attention.
Spinello said the overnight Tuesday was affected by strong U.K. inflation data, which drove Sterling [GBP= 1.6355 -0.0017 (-0.1%) ] higher against the dollar. "The question is who goes first," in terms of tightening monetary policy, and the market could become concerned that the Fed is lagging in tightening, he said.
Stocks were relatively quiet Tuesday after Monday's big swing higher. The Dow [.DJI 12018.63
-17.90 (-0.15%) ] finished down 17 at 12,018, and the S&P 500 [.SPX 1293.77 -4.61 (-0.35%) ] slid 4 to 1293. The defensive utilities and telecom sectors were the only Standard and Poor's industry groups in the green, on a day that Reuters reports was the lowest trading volume day of the year.But in the euro zone, spreads on peripheral sovereign debt were trading wider and credit default swaps, which reflect the price of insuring debt, went shooting higher.
On Wednesday, Portugal's parliament is scheduled to vote on a new austerity budget, which opposition parties have said they will not endorse. Prime Minister Jose Socrates has threatened to resign if the budget fails, raising the prospect of a government collapse and an IMF bailout. The vote comes on the eve of an important European Union summit Thursday where leaders are expected to agree to programs aimed at the sovereign debt crisis, including strengthening of the emergency funding mechanism.
In the U.S., Fed Chairman Ben Bernanke speaks to the Independent Community Bankers of America convention at 12 p.m. ET. New home sales are reported at 10 a.m., and traders are watching for EIA oil inventory data at 10:30 a.m.
Investors are also watching events in the Middle East and Japan's efforts to solve its nuclear crisis. Egypt's stock market was expected to reopen for the first time since the government was overthrown.
On Tuesday, the U.S. Food and Drug Administration banned food imports from the area of Japan affected by the leaking Fukushima Dai-ichi nuclear facility, and Japanese press reports said the Japanese government estimates quake related damage at $185-$308 billion.
Euro Zoned
Ireland joined Portugal in the spotlight Tuesday as rumors, later knocked down, circulated that it would not meet its debt payments.
The dollar was just slightly weaker against the Euro [EUR= 1.4162
-0.0037 (-0.26%) ] (1.4199) and slightly stronger against the Yen [JPY= 80.90 -0.07 (-0.09%) ] (80.9061)."To me there's a disconnect here in terms of what certain assets are telling us in Europe, when contrasted with the apparently unrelenting strength of the euro," said Michael Moran, Standard Chartered senior foreign exchange strategist. "There is a conflict. I think at some point there will be a convergence and ultimately I think the euro will be the casualty, but this could take multiple months to really play out."
Moran said the November high of 1.4282 is in play as the next level for the euro currency. "That is really the level people are gunning for now," he said. "...On the one hand the debt perception of the European periphery has arguably worsened over the last 12 to 18 months, yet the euro is strengthening."
Moran said failure of the Portuguese government would be a "fresh negative" for the euro, and the rumors about Ireland, which were propelled across world markets by Twitter, is a reminder that there remains structural issues in the euro zone. He added that the stronger message might be that this is a period of dollar weakening, rather than euro strengthening.
"There's two central pillars of support. One is Germany and its outperformance, and the other is the insistance from (European Central Bank President Jean Claude) Trichet that tightening is the best course of action," he said.
"If one take a macro view in the next six months, the euro does look a little too strong in that sense. But if you're a trader, especially over the last two or three weeks, you have to be cognizant that the momentum really has been with the euro bulls, and it's been very expensive trying to fade these moves higher in the euro. But I think there is some inconsistencies and conflict, which suggest sentiment might still have a glass jaw, but it's very difficult to really go against the under lying momentum now," he said.
Oil Drill
Oil was a big gainer on the day, with the May contract for WTI Crude [CLCV1 105.23
0.26 (+0.25%) ] rising 1.8 percent to settle at $104.97 per barrel, as traders watched the conflict in Libya and tensions in Yemen and Syria. Yemeni President Ali Abdullah Saleh refused to give in to opponents who demanded he quit, as he continued to lose support from one-time backers.Traders are watching for EIA supply data, following the API's report that showed a 970,000 build in U.S. crude stocks, well below the 1.6 million barrel increase expected by analysts.
"It's a very nervous market.. If the wrong thing happens. it could take out the highs we knew in 2008 in a blink," said Ray Carbone, president of Paramount Options.
While oil rose in reaction to Middle East events, Treasurys slid, with the 10-year Yield rising to 3.334. Gone was the flight-to-safety bid of last week, when markets reacted to fears that Japan's nuclear crisis would continue to worsen.
"It's right now immune to any of the external forces. You've got the market trading momentarily on the Fed purchases. This week we had an onslaught of corporate pricings. So in the morning, you get the hedging of the product, and in the afternoon you get the pricings," said Jefferies Treasury strategist John Spinello.
There was $13.65 billion in investment grade corporates issued Tuesday, including most of a $7 billion 6-part trade for Sanofi-Aventis' acquisition of Genzyme. Dupont also came to market with $4 billion for its acquisition of Danisco, according to Thomson Reuters IFR. So far this week, $19.3 billion has priced, compared to just $6.85 billion last week as issuers held off a the Japanese and Middle East events dominated market attention.
Spinello said the overnight Tuesday was affected by strong U.K. inflation data, which drove Sterling [GBP= 1.6355
-0.0017 (-0.1%) ] higher against the dollar. "The question is who goes first," in terms of tightening monetary policy, and the market could become concerned that the Fed is lagging in tightening, he said.
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