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Italian Elections and Euro Crash Roil Markets

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Today's financial recap and tomorrow's financial outlook.

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Equities followed through from Friday's gap fill and positive initial exit polls from the Italian Senate election continued to drive them higher as the market opened. However, once more ballots were tallied, it was clear that the favorite, Bersani, was going to lose his majority in the Italian Senate to ousted Prime Minister Silvio Berlusconi. This was met negatively by the market since it was the austerity measures that interim Prime Minister Monti had enacted that enabled European support to drive Italian equities from its lows. By the US market close, it appeared that Berlusconi would gain the majority of seats in both the lower and upper houses of Italian parliament, though questions over a hung parliament remain.

Risk assets continued to deteriorate throughout the day due to severe weakness in the EURJPY. The S&P 500 opened up more than 7 points and continued to rally in the morning, but the sudden release of Italian exit polls caused deterioration throughout the day that ended in a brisk sell-off to close the day's trading session. The EURJPY finished US trading at 119.30, a full 5.76 points down from its intraday high, an extreme move.

US sector laggards included financials (-2.87%) and housing (-3.36%). In particular, money center banks struggled mightily. Goldman Sachs (NYSE:GS) and Morgan Stanley (NYSE:MS) both dropped over 6%.

In the news, Japanese Prime Minister Abe nominated Asian Development Bank president Haruhiko Kuroda as governor of the Bank of Japan and the previous favorite Kikuo Iwata as deputy governor. Kuroda, compared to Iwata, is a much more moderate governor and the JPY may reflect that in the future.

On the US economic front, the Dallas Fed regional manufacturing activity survey declined to 2.2 from last month's 5.5, below the 3.5 estimate. Internally, the survey showed weakness in its future outlook and the only positive subindex appeared to be leftover strength from the prior month's huge spike in orders.

Tomorrow's Financial Outlook

Overnight action in US equity futures will be key as foreigners react to the action in foreign exchange and US markets. On the US economic data front, housing data in the form of the S&P/Case-Shiller and monthly NAR home price indices are on the schedule for 9 a.m. ET. Later in the morning will be new home sales followed by February's Conference Board Consumer Confidence reading. All economic data is expected to rise modestly month-to-month.

No economic data in Europe on the calendar, but Japan will release small business confidence before the US market open and retail trade after the US market close.

On the earnings front, Macy's (M), AutoZone (AZO), Home Depot (HD), RadioShack (RSH), HollyFrontier (HFC), Priceline (PCLN), and Gulfport Energy (GPOR) are scheduled to report.

Twitter: @Minyanville

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No positions in stocks mentioned.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

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