It's Amazing How Fast Things Change

Or it may be we are just seeing an acceleration that you'd expect to see as the wheels fall off the global economic trolley car.

In the past week or two and as recent as last night, the fundamental commentary that I've been offering (which is not my normal routine, but I feel is essential right now to understanding the unpredictability and what causes certain effects to take place) has been eerily close to events taking place. The really scary part is how quickly these events are developing.

Just last night we saw the EUR/USD FX pair gap up, I gave my usual warning about FX markets at night, "A lot can happen overnight" and it did.

Here's the 5 min chart.

You can see where the Euro gapped up last night on news of a deal with Ireland leaking out, you can also see where overnight action has led us. As I explained last night (this is the Euro-when the Euro weakens the dollar gains), a weak Euro means a stronger dollar, which means a weaker stock market.

We are in the midst of a POMO operation right now scheduled to end at 11 a.m., but many other things have happened overnight, some tied directly to QE2, some not.

First up, as always, the markets hate uncertainty. The deal last night seemed to give a sense of certainty with regard to Ireland, but we are now hearing that details regarding the bailout may not emerge for 2-5 weeks. In addition, when I first started writing about Ireland, I mentioned that the Fianna Fail government is highly fractured and this deal could put an end to the scarce majority there. Overnight the Green Party quit the government setting up probable elections sometime in January. I also mentioned the possibility of Greek-like violence in the streets of Ireland. Protesters are out in force right now and trying to break into government buildings.

The Sinn Fein contingent wasted no time in making their feelings known unequivocally with this poster below.

Markets are looking at this already as a "Failed Bailout". As I warned last night, we want to watch the cost of borrowing for Portugal to see f they'll be the next to need a bailout, CDS spreads are already wider then they were on Friday, not a good sign for Portugal being able to go this without help from the E.U./IMF/whatever contraption they are trying to set up.

China was mentioned as another problem as they have already set out on a number of price controls leading to fear that a rise in interest rates will be next. Whether they do or not, the PBOC has intimated they may start selling treasuries in direct response to the Fed's QE2 regime-consequences! China has also ordered banks to increase their reserves requirements to fight inflation. Also in Hong Kong, the weekend to weekend sales data shows this weekend down 83% over last weekend! This is due to increased costs in docs to buy a home. They are obviously moving to slow their housing market and everything else as well.

Elsewhere in Asia, Thailand (emerging market) saw its Q3 GDP grow at the slowest pace in 3 quarters.

In the U.S., apparently the Fed is set to slash estimates for  growth forecasts and will predict HIGHER UNEMPLOYMENT when it releases it's updated economic projections this week.

In addition, last week I mentioned 19 of the US financial institutions are to undergo another stress test, today news is out that there may be at least 35 institutions at risk. Again last night, financials we're on my bearish list. Even in Europe today they started as the best performing group and have turned later in the morning to the worst performing group.

Market Update coming next...