Equities In Question

Volatility ripped through the global equity markets on Thursday as rumors began to build that European Banks were coming under increasing scrutiny and questions were being asked about operating capabilities. In tandem a horrific Philly Fed Manufacturing Index outcome came from the U.S. with a result of minus -30.7 compared to the forecasted gain of 4.0. The combination sent what was already fragile investor sentiment into a tailspin and the effect were equity markets that declined significantly. Gold climbed to new records and as of this morning’s writing is trading around 1844.00 USD per ounce. In the meantime Crude Oil continued to slip as fears about a large scale global economic contraction increased. The problem in short is that investors have major questions about the way European and American policy makers are attempting to fix the machine. U.S. Treasuries continued to see their yields decrease yesterday highlighting that even though they were recently downgraded investors are pushing their money towards preservation (safe haven vehicles) instead of seeking profits.

The EUR lost ground to the USD Thursday. The GBP and AUD also lost ground to the Greenback. The Forex markets did see swift trading but in many respects were spared the tumult that the equities experienced. The EUR/USD pair remains of keen interest taking into consideration the amount of questions that shadow both Europe and the States. The evidence has shown throughout the year that this pair has actually performed in a rather stable range taking into consideration the amount of troubles regarding Sovereign Debt from Europe and the intrigue surrounding a possible new round of QE (quantitative easing) from the States. The question is how long this counterbalance can really last.

The amount of selling on the equity markets is no small matter and highlights that the attempts to calm investors has not worked. Why? It would seem that investors no longer believe in the smoke and mirrors that officials are have been trying to display and our asking for something more substantive. In the meantime, the question that the more bold market participants who take a long term viewpoint will be starting to ask -is where the values are. And this will lead to interesting answers because there are some values certainly within the equities among traditional companies. Unfortunately banking and companies that make their money off of discretionary consumer spending may continue to find themselves facing tough prospects. Wall Street will enter today’s session with investors pondering market psychology. The idea of holding positions into the weekend with so many concerns present may prove a difficult task.

Safe haven assets such as Gold and U.S. Treasuries have certainly found new friends the past week. The JPY and CHF also continue to attract takers who question where they can put their money. For traders seeking to profit from the volatility a careful game plan consisting of risk management will have to be taken into consideration.  There will no significant data released today from Europe or the States. The U.K. will present its Public Sector Net Borrowing numbers, but this is unlikely to get much attention considering the depth of concern that is being punctuated by the debt crisis from Europe and the economic troubles brewing in the States.

Going into the weekend investors and traders will have to carefully gauge what their goals are for their portfolios. Short term and long term differentials may prove completely divergent at this juncture and traders will need to determine every move individually.