Investors flock, while leaders flee

I’m having a difficult time figuring out what the markets see, that I don’t.

Yes we have President-elect Donald Trump coming into office in 6 weeks or so. The perception of regulation easing and increased infrastructure spending have many sectors soaring.

But we have other heads of state running for the exits this week: Italy, New Zealand, Bulgaria governments are in flux over these seemingly separate decisions to leave office early.

We also have the fall out of Brexit, Italeave and as always, Greece to deal with in early 2017.

Change and upheaval are not the things that put the Volatility Index near an all-time low and US indices both broad and narrow are hitting all-time highs.

Perceived regulatory rollback is the driver here in the US, but the demise of the euro could be on the table in early 2017, and that’s not in the market at all.

As I have often said the Dow is not the economy and like now, don’t march in lock step.

With ECB head Mario Draghi giving the market a mixed message this morning with further easing through 2017, but reducing the monthly stipend after March, we see the struggles within Europe.

Next week we have Janet Yellen and the Fed raising rates 25 bps, which could take some of the wind out of the markets, but the year-end window dressing for portfolio managers should stem the downward flow until early 2017. Just the same as last year’s market action.

 

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Hmmm, global markets say ciao to Italeave

Italian voters on Sunday rejected constitutional changes backed by the government, prompting Prime Minister Matteo Renzi to announce his resignation and handing populists a victory in the heartland of Europe.
Despite this seemingly  disastrous news for the future of the euro, global markets moved higher. The euro is slightly stronger on Monday, with global stocks rallying and US Treasuries selling off.
The news of the third-largest EU country beginning the process of exiting has investors shrugging off the idea that Italy’s vote could imperil the European Union and the euro, unlike Brexit.
I see this for what it is:  A massive Central Bank intervention across the globe to stabilize economic collapse since most of the Italian banking firms are teetering with shares across the sector falling 46% this year. Monte Paschi’s shares are down 86% for 2016.
There is no way for this market reaction to have any other invisible hand working behind the scenes. All the tell-tale signs of massive intervention are there.
Stock futures were off 2% an hour before trading and in the manner of 20 minutes prior to the open turned positive and soared 1.5% into the open.
Here in the US the President’s Plunge Protection Team almost always intervenes in the futures market when needing to step in a provide support.
The futures allow them to make large stakes without a huge expenditure and leaves very little fingerprints to their actions.
This appears to be the MO of Monday’s fix on a much broad and coordinated effort across Europe, Asia and the US.
Let’s see if it has legs as European markets close midday here and the US goes into its close?

Tremors through the EU as Italeave gains traction

The attack in Nice, France has prick the latest equity bubble in early trading in Europe, according to media reports.

While the attack is horrific, I can’t say that financial firms or institutional investors have that on their mind.

I believe the driver behind the moves Friday is the Italian banks, which have been limping along for the last three weeks since just prior to the Brexit.

Italy is still looking for a way to end run the EU and bail out its banks. The leadership has had discussions with China, and Germany’s Angela Merkel squashed that move.

There’s an Italian election coming up with Luigi Di Maio leading in the polls. Di Maio’s political party has a stance on having a referendum on voting to leave the EU and euro.

The “Italeave” movement is gaining strength as Italians fear they will be treated like the Greeks with bail ins and haircuts on their savings accounts.

This movement is sending tremors through the EU, since Italy is the third-largest economy in the EU.