Headline Risk Overload
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6/18/12

This week we have headline overload.  The leaders of the G-20 nations are meeting in Los Cabos, Mexico.  President Obama will be meeting with Angela Merkel this afternoon to twist her arm to increase growth initiatives and ease bailout austerity measures.  In Athens, New Democracy leader Antonis Samaras is meeting to form a government after elections yesterday gave his party 29.7% of the vote.  SYRIZA (party of the Radical Left) came in second with 27% and PASOK (socialist) received 12.3%.

Samaras will meet with PASOK leaders to enlist their support in the legislature and perhaps join the government.  The winning party in Greek elections receives 50 bonus seats in the Parliament, so New Democracy and PASOK would have 162 seats in the 300 seat Parliament.  Reuters has the latest news on Greece in “Greece’s New Democracy seeks bailout Coalition.

President Obama has requested a meeting with European Leaders this evening to discuss lasting solutions to the eurozone debt crisis so it does not spread damage to the U.S.  Germany has opened the door to slowing the timetable on the speed of Greece implementing budget cuts to bring their budget in line, but has not budged on the necessity for governments to move towards closer fiscal integration and cede their sovereign budget authority.  Reuters has more on the G-20 meeting.

Iran and the P5+1 countries started negotiations this morning in Moscow to resolve the Iranian nuclear standoff.  The P5+1 is made up of the permanent members of the U.N. Security Council plus Germany.  Iranian President Mahmoud Ahmadinejad posted comments on his Presidential website that Iran would be willing to stop enriching uranium to 20% purity for nuclear medical research if other countries agreed to supply its needs.

Ahmadinejad’s term ends with elections next year and observers do not know if he speaks for the Supreme Leader Ayatollah Ali Khamenei. The Moscow round of negotiations are scheduled to end tomorrow.

Negotiations center around three concerns, they are: stop 20% enrichment, allow inspections of continuing enrichment facilities that enrich to 3.5% - 5% for electrical generation and inspection of military facilities that may be doing nuclear weapon research.  Israel is watching the negotiations fearing that Iran is simply trying to buy time to continue research on a bomb.

Sanctions will tighten on Iranian exports of crude oil in two weeks and Iran’s Central Bank will be barred from using the Asian Clearing Union on imports and exports beginning June 28. Reuters and Pravda have unique perspectives on the negotiations in Moscow.

The Federal Open Market Committee (FOMC) begins meetings tomorrow.  We will get the normal Interest Rate decision and FOMC statement on Wednesday just after lunch.  Ben Bernanke will hold a press conference in the mid-afternoon.  We don’t expect quantitative easing to be announced.  This may disappoint the market and cause a sell off on Wednesday.  We do see an opening for continuing “Operation Twist” that is supposed to end this month.  Operation Twist is seen as a “sterile” operation.  It does not increase the size of the Federal Reserve’s balance sheet.

Continuing Operation Twist would be bullish for the market as it would be interpreted as a compromise on the FOMC and brings the Fed one step closer to printing money if the economy weakens…which it will.  Buy precious metals.

The Greek election results were good news for the eurozone but did not reassure bond holders as Spanish interest rates spiked to 7.18% on ten-year bonds this morning.  Spain is scheduled to sell bonds tomorrow and Thursday.  The cost of Credit Default Swaps (CDS) on German debt has increased almost 50% in the last 90 days.  The market is pricing in the additional debt falling on German shoulders.

We see a rocky week ahead with traders bouncing from bullish to bearish…risk on to risk off.  Be careful what you wish for, you might just get it this week!

Quote:
What the President’s got to say, “Hey, don’t forget about George W. Bush.  Things got really, really bad under him.—NBC’s Meet the Press host David Gregory on the Today Show last week.

Doug Powers suggests David Gregory’s next piece of advice to the President will be to take up golf to relax and attend a few fundraisers to raise money.

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