The equity markets climbed slightly as investors recovered from Friday’s drubbing. Volume was extremely light and the S&P 500 index oscillated between minus two and plus 8. For the trading session the S&P 500 Index closed higher by 6 points to 1073. After the close, IBM’s poor earnings release, hit the futures, which is likely to spill over into tomorrow’s trading.
Newswires are reporting that big German institution failed the bank stress tests. The fact that this institution had already been taken over by the German government reflects that the bank is not exactly in great shape. German Landesbanken are also thought to be vulnerable to failure. What’s also important for markets is not only which banks fail the stress tests, but also what assumptions are made. If the stress assumptions are seen as too lax, that too would be taken negatively by markets. Official bank stress test results are scheduled for release this Friday starting at 6 PM Brussels time (12 noon EST/1600 GMT), and poses the biggest event risk this week for the markets. Coming out on a summer Friday afternoon adds to that risk, but expect more leaks ahead of Friday. Moody’s lowered the rating on Ireland’s government bonds by one notch to Aa2. Perhaps more importantly, Moody’s upgraded the country’s ratings outlook to “stable” from “negative.” That move suggests Moody’s doesn’t expect to make additional changes anytime soon. The positive outlook helped the Euro to climb, touching 1.2980, and getting close to strong resistance near 1.3000. Over the weekend, talks among Hungary, the European Union and International Monetary Fund collapsed when the EU and IMF said Hungary needed to take bigger steps to reduce its deficit.
Gold prices were hammered during the day, as investors moved out of the yellow metal. Gold briefly touched the 50-day moving average support before bouncing back slightly to 1183. Gold will likely consolidate near the 50-day moving average, which is currently 1178.