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Grexit and Oil-Related Weakness Drive Risk Assets Lower

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

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Global equity markets suffered another bout of heavy selling today. The S&P 500 (SPX) for the first time fell for four consecutive days, a streak that had lasted 264 days. The drop was spurred by weakness in European equities as comments over the weekend from German Chancellor Angela Merkel indicated that she was comfortable with Greece exiting the Eurozone. The Italian FTSEMIB lost 4.92% and was the clear worst performer in the region for today's session. Market participants expected that the recent election turmoil in Greece would permeate into Italy, which is perceived to  be the next most vulnerable country. The Euro fell 0.55% versus the USD by the end of equity trading as Germany's preliminary December inflation data was worse than expected with prices only rising 0.1% from a year ago.

West-Texas intermediate crude oil futures dropped below $50 for the first time since March 2009 in today's session. The damage spread to the stock market as well. The exploration and production sector of the S&P 500 lost 6.3% in today's trading. There was no fundamental reason that could be attributed to the decline as there were a number of mildly negative reports early in the morning. Separately, two major investment banks released in their 2015 outlooks that they see oil prices depressed below $50 for years to come, which may have been the cause for the drop.


The SPX fell by 1.83% in today's trading. The drop was led by declines in energy, materials, and industrial stocks. Some analysts now believe that the weakness in oil would spread to other parts of the economy, specifically industrials with direct exposure to oil exploration and production, and that attributed to the decline. Treasuries rallied strongly - the 10-year yield fell by 7bps to 2.04%.

Tomorrow's Financial Outlook

Many market participants are expecting a bounce tomorrow, whether or not the SPX opens up or down. Short-term momentum indicators are now severely oversold, which would indicate a relief rally is probably in the cards. Ultimately, a trip to the 200 day moving average at 1960 appears to be in the cards at this time. Tomorrow's economic reports include the December ISM non-manufacturing index and November factory orders. The ISM index is expected to moderate to 58.0 from 59.3 in the prior month, which had been the second highest reading in the past decade.

Across the rest of the world most of the economic data scheduled to be reported is related to the services industry. Overnight, China, the eurozone, and the UK will all release their respective services PMI's for December. Additionally Australia is set to report its trade balance tonight.

Micron Tech (MU) is the only major US company scheduled to report earnings tomorrow.

Twitter: @Minyanville

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No positions in stocks mentioned.

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