EmailThe U.S. equity market finished off its highs yesterday, yet still managed to pad last week's gains with a tidy 1.0% advance for the S&P 500.
The market reportedly took some solace from the announcement that Germany and France are on the same page with their thoughts on how to forge a closer and more accountable fiscal union in the eurozone. In particular, they each believe there should be automatic sanctions for countries that do not comply with the budget rule that deficits remain below 3% of GDP.
That isn't exactly a new position, but the idea that these leading eurozone members are in agreement heading into the EU Summit served as the more pertinent point for yesterday's participants.
On the other hand, the sense of detente between the two did not prevent Standard & Poor's from announcing it has placed the ratings of 15 EU nations, including Germany and France, on "CreditWatch" with negative implications. That designation implies there is a 50% chance of a downgrade within 90 days.
S&P called attention to rising systemic stresses in the eurozone and noted the outcome of the EU Summit will be instrumental in driving any impending ratings changes.
The rumor of the S&P action hit the tape during yesterday's session and pared larger gains registered earlier in the day. The market, however, did benefit from another late burst of buying interest that left the S&P 500 up 1.0% for the day.
Including Monday's gain, the S&P 500 has risen 8.5% in the last six sessions and is now flat for the year excluding dividends.
At the moment, the S&P futures are presaging a relatively flat start for the cash market. That indication belies an otherwise decent comeback from an overnight low that had the S&P futures down about 8 points.
The rebound has coincided with European averages recovering from their intraday lows and most eurozone bond markets holding fairly steady in the face of the S&P downgrade threat. France is perhaps the one exception there as the yield on its 10-year note has risen 10 bps to 3.23%.
In other developments, Darden Restaurants (DRI) has warned of an earnings shortfall; the Reserve Bank of Australia cuts its key lending rate by 25 bps to 4.25%; and a preliminary reading showed GDP was up 0.2% in the eurozone in the third quarter.
There isn't any economic data out of the U.S. today, so the action should continue to revolve around expectations for the EU Summit.
--Patrick J. O'Hare, Briefing.com
Patrick J. O'Hare is Chief Market Analyst for Briefing Research, Briefing.com's institutional research service. To request a free trial, please email researchsales@briefing.com.
