It's All About Europe

October 27, 2011 12:50 AM
 

What Traders are Talking About:

* EU leaders reach debt deal. After eight hours of intense negotiation, EU leaders emerged from their meeting with a debt deal, although not all of the details have been worked out yet. The private sector agreed to a voluntary 50% write down on Greek bonds. Euro-zone governments will garner 30 billion euros in "credit enhancements" to finance guarantees for private sector. And the European Financial Stability Facility (the bailout fund) will be leveraged four- to five-fold to around 1.4 trillion euros.

The long and short of it: Global markets responded very positively to the news of the long-awaited EU deal, with commodities and stocks rallying sharply overnight.

* But there are some doubts. While news of an EU debt deal is positive for now, there are still many unanswered questions. Banks must raise capital and there are serious questions as to where that funding will come from. Also, all of the details on the debt deal have not been reached yet. That means more negotiating at a later date, which likely means investor disappointment at some point. And there are questions as to how the euro-zone plans to restore economic growth, which has not been addressed.

The long and short of it: Investor sentiment is bullish for now because the euro-zone is actively working to ensure conditions don't worsen. But at some point, EU leaders must come up with a plan to start growing.

* Third quarter GDP out this morning. Third quarter GDP data should be enough to at least temporarily take investors' attention off the euro-zone. Economists expect data to show the U.S. economy grew at the fastest pace this year in the third quarter. The average pre-report trade guess is for growth of 2.5%, but some "whisper" numbers are above that level.

The long and short of it: A strong GDP reading could be enough to let U.S. markets separate from the situation in Europe and start trading our economic data and our market fundamentals.

 

Follow me on Twitter: @BGrete


Need a speaker for a seminar or special event? Contact me: bgrete@profarmer.com

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