EU Summit, Earnings to Drive Stock and Currency ETFs
October 24th at 9:05am by John Spence
Currency exchange traded funds pegged to the euro were set to open with a slight decline Monday as weekend meetings between financial officials in Europe produced no immediate, concrete plan to cool the debt crisis.
“The summit provided very little detail,” said Adam Myers, senior market strategist at Credit Agricole, in a Dow Jones Newswires report Monday. “The two-week risk rally we’ve seen in the market can’t last. I expect to see a correction of the rally by Wednesday as the market wakes up to the fact that the Eurozone solution is another fudge.”
“Sunday’s summit of European leaders produced hints of an agreement while postponing actual decisions for a second meeting set for this Wednesday,” added David Kelly, chief market strategist at JP Morgan Funds, in a weekly outlook. “The key points of the plan have been well canvassed – further, more significant haircuts on Greek debt, a demand that European banks boost their capital, possibly with the use of European Financial Stability Facility funds, and potentially using EFSF funds to partially guarantee sovereign debt.”
CurrencyShares Euro Trust (NYSEArca: FXE) was down 0.3% in premarket trading Monday. The currency ETF rose slightly last week, extending its October rally.
Still, so far there is “little evidence” from the European Union summit that the central issues will be addressed, said JP Morgan’s Kelly.
“Most observers recognize that the problem is not one of bank balance sheets but rather of the creditworthiness of sovereign government debt. However, to restore confidence in the government debt of the most indebted nations it is imperative that they return to economic growth, a goal which is being undermined by the budget cuts demanded by their creditors,” the strategist wrote.
“Eventually, having tried everything else, European leaders may approve significant fiscal transfers to achieve this growth,” he said. “However, until then, any agreement is likely to receive a ‘thumbs down’ from markets – clearly a major roadblock for global stock markets this week.”
It will also be a busy week for corporate earnings as 187 companies in the S&P 500 report quarterly results. “Through last Thursday, 71% of firms were beating earnings estimates compared to 22% missing,” Kelly said.
CurrencyShares Euro Trust
