The equity markets consolidated as investors continued to favor stocks over commodities and the dollar. Investors shed commodities as gold and oil prices were hit hard in today’s trading session. Gold prices declined by 24 dollars to settle close to 1160. For the day, the S&P 500 Index declined 1 point to 1113.
The market continues to watch for clues that the tests have eased stresses in the European banking sector. Although relief seems to have replaced fear on the surface, there are clues that European banks are not out of the woods, especially if one looks at interbank lending rates. EURIBOR rates have been rising steadily since April, due in large part to perceived jump in counterparty risk. As a result, weaker banks from the periphery have been big users of cheap ECB funding as an alternative. Note that 3-month EURIBOR continues to creep higher and was fixed today at its highest level (.8275%) since the summer of 2009. ECB reported that it bought only EUR176 million of sovereign bonds last week, the lowest since the program began in May. Sovereign spreads are tightening today on improved sentiment, but remain quite elevated and are still pricing in significant default risk for Greece. But overall, despite the continued creep upward in EURIBOR, FX markets are relieved that stress tests, however flawed, have finally been released. The 1.30 level is very important, representing the final 62% retracement level of the big April-June sell off in the euro. Clear break would target the post-ESFS high around 1.31 and then ultimately the April 12 high around 1.37.
U.S. home prices rose in May on a monthly and annual basis, according to the S&P Case-Shiller home-price indexes, boosted by seasonal factors and the residual impact of the now-discontinued home buyers’ tax credit. The Case-Shiller 10-city index rose 1.2% compared with April; the 20-city index rose 1.3%. Adjusted for seasonal factors, both increased 0.5%. From a year earlier, the 10-city index rose 5.4%, and the 20-city reading climbed 4.6%. Separately, an index of consumer confidence fell to 50.4 this month, from a revised 54.3 in June that was first reported as 52.9. The July reading is the lowest since 46.4 reached in February and was slightly less than the 50.8 expected by economists. The present situation index, a gauge of consumers’ assessment of current economic conditions, fell to 26.1 in July from a revised 26.8 in June, first reported as 25.5.
