Enis’s Morning Wrap – In the Hands of the Politicians

by Enis June 25, 2012 7:55 am • Commentary

Negative start to the week, with SPX futures down more than 1%, Europe down 2%, Eur/Usd back below 1.25, and oil back below $80.  Like I mentioned on Friday in QuickHits, I think 1300-1315 could act as near-term support as investors will turn their eyes to hopes of something from the European Summit at the end of the week.

The Germans still seem unwilling to put up the cash, and a number of articles over the weekend outlined their increasing opposition, such as this one from the FT.  However, hope is a strong emotion, and Spanish, Italian, and French officials will be busy leaking hopeful ideas to the press ahead of the summit this week to try and put public pressure on the German officials.  I am looking for a good entry on Monday or Tuesday to buy some weekly SPY calls as a hedge against my 1-3 month single name puts.

One other long-term trend to keep on your radar.  A gradual shift in technocrat opinion has occurred over the last 6 months with regards to the effectiveness of central bank action.  The Bank of International Settlements (BIS), essentially the international banking regulator, released a report this weekend detailing the limits of central bank intervention.  FtAlphaville has a good summary here.  Last week’s disappointing FOMC is an example of hesitancy by central banks to go further.  With calls for more ECB intervention, this is an important theme to monitor.  My CotD later today will expand on this theme.