Yeesh. Where to begin?Let’s just go to the scoreboard:
S&P 500: -17.11
And now, the top stories:
- From a global perspective, the one big story has been going on since Sunday, and that’s the Irish bailout that’s been deteriorating since the moment it was announced. But let’s get back to that in a moment.
- The big EVENT of the day was obviously the North Korean shelling of an island chain inhabited by about 1000 South Korean citizens. Over a dozen soldiers were injured, and at least two were killed. This is the second major provocation in the past six months, the former being the sinking of the Cheonan. Markets were instantly roiled on the news, and it sent the dollar and gold surging, and the Korean won tanking.
- Also in Asia: China and Hong Kong continued to get crushed. This is the underreported story of the moment. With so much focus on Ireland and the Korean conflict, people are still ignoring the fact that this monster consumer of commodities, China, is tanking. It’s not clear why, exactly, it’s not getting more attention. But it isn’t.
- Ok, as for Ireland, the day was characterised by more political strife, and that’s deadly for the country, since the inability to pass a budget threatens its ability to take a bailout, which threatens the banks, which… spills directly into the rest of the Europe, and that’s why you’re seeing other European leaders begin to panic. EU Budget Minister Olli Rehn was in secret meetings with Irish MPs demanding a budget. Merkel is even panicking.
- Also on the Europe front: Spanish yields blew out, and now everyone is talking about the main event… the Spanish crisis. Click here for a background on that >
- All the news was already sending US futures lower in the very early going, though the wheels came hard off after the opening bell. A good Q3 GDP revision was no help. Existing home sales at 10:00 were neutral. The theme seemed to be clear: flight to safety. And this wasn’t just your typical “risk on/risk off” kind of day, which we know because gold gained in tandem with the dollar, not in spite fo it.
- The other big economic event of the day was the 2:00 PM ET Fed Minutes, which confirmed that FOMC members have been cognisant of the role QE could play in damaging the dollar. The Fed also — as expected — revised down its growth outlook for the coming years. Though again, that was all expected.
- Meanwhile, the hits keep coming in the financial industry, which is getting rocked by raid after raid of hedge funds. Today it wasn’t just hedge funds, but mutual funds too.
- All that being said, there is still consolation for the bulls today. The markets could have been down a lot more. We’ve been saying that a lot, but there wasn’t a total washout… and this was very much event driven, i.e. not necessarily relating to the economy. The good GDP revision is bull ammo (so was the under-reported Richmond fed). And again, the fact that we saw the big spike in gold and dollar simultaneously suggested this was a real nervousness-flight-to-safety move, and not just your typical “risk off” event.