Overnight and in to the open.

In less than 24 hours we went from German press reporting Berlin and Paris were pushing Spain to seek a bailout, then Spanish officials deny those stories or that Spain even needs help, then Spain openly states they are locked out of term funding markets and need EU help, then plans for a provisional credit line are set up for Spain via the ESFS to aid in bank recapitalization, then the ruling German CDU party throws up roadblocks to the provisional credit line. All of this from rumor to official denial, to plan to cutting the plan down all took place in less than 24 hours, and the Europeans wonder why no one wants to help them with lending? In any case, it sent beaten up Spanish banks significantly higher.

Last night the banking downgrades continued as expected (and they should continue for quite a long time to come), but this time hitting the very core, six GERMAN banks were downgraded by Moody's, Deutsche Bank is still under review. The reason in a nutshell, "(The) rating actions are driven by the increased risk of further shocks emanating from the euro area debt crisis, in combination with the banks' limited loss-absorption capacity. "


Here's the list




The rating action seemingly had no effect on ES, this may be because around the same time the WSJ's John Hilsenrath (considered to be the unofficial F_E_D mouthpiece), floated the idea that the F_E_D is considering "More action amid recovery doubts". Sometimes a well placed, well timed leak can be just as effective as the real thing, I'd take it with a grain of salt of this wouldn't be the first article from Hilsenrath that missed the mark. Lockhart didn't provide much clarity as he says "Easing isn't being taken off the table" and "the bar for easing is high".




Euro area (17 countries) and EU (27 countries) saw GDP come in flat, the reason, exports and the reason for that, a weak Euro. Who says there's no benefit to the realization that Europe is about to fall off a cliff? That generally accepted reality has sent the Euro lower, exports higher as a result and kept the EU from seeing two consecutive quarters of GDP contraction which means they just escaped the technical definition of a recession with Q1 GDP. You may recall though that the latest data from yesterday shows the export dynamo of the EU, Germany, is in fact slowing. A Euro short covering squeeze may in fact drive the EU in to recession, but we'll need two quarters of contraction so they have put off the technical definition of recession for a bit longer.


Throughout the night ES marched higher...

ES from the 4 pm NY close to 6:40 this morning.


Then, this...

Expectations for at least a 25 basis point cut by the ECB (other banks expecting a 50 basis point cut) got ZEO-Zip-Nada! The pop in ES after the decline was because Draghi was speaking in a press conference and the "hope" is he will mention some sort of easing, LTRO 3 perhaps? It was doubtful, the presser ended at 9:45 and true to reality, Draghi didn't through anything new out there.


For a review of his comment and a link to the conference, click here.


Still, we have a pretty good risk on move-I don't see any substantial news behind it, so you can probably guess what is behind it as we have been watching it develop for weeks.


Gold is up, I'm not sure if that is on the Hilsenrath QE expectations or the weaker dollar, maybe both.


Updates coming, but the last several days have been a nice transition, seemingly confirming the downside head fake move as we are only a few points away from hitting the apex of the bear pennant, above that short covering gets heavy.