Sorry!! The article you are trying to read is not available now.
Thank you very much;
you're only a step away from
downloading your reports.

Brazil Election, ECB Stress Test Results Weigh on Global Risk Assets


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

The main focus for investors this morning was the result of the Brazilian Presidential election from yesterday. Incumbent President Dilma Rousseff won re-election by the tightest margin in over 60 years, taking just 51.45% of total votes. Because Rousseff's economic policy has largely been ineffective, another term may mean more subpar economic growth and a possible ratings downgrade. On the bright side, because the margin of victory was so small, Rousseff may be forced to embrace a more centrist viewpoint and form a coalition.

The Brazilian Ibovespa (IBOV) fell as much as 8% at the open of trading -- the options market had priced a move in excess of 12% -- but it recovered more than half of those losses by the end of trading. It has fallen 20% from its high less than two months ago as investors repriced their expectations of a contender's victory in the election. Similarly, the Brazilian real fell by 3.35% against the US dollar at the beginning of the session, but retraced about half of those losses by the close.

The results of the ECB's Asset Quality Review (AQR) was disproportionately skewed towards an undercapitalization in Italian banks. Of the 25 banks who failed the stress tests, a third were from Italy. The worst bank of them all was Banca Monte Paschi (BMPS), which may need to raise 2.4 billion Euros of debt or seek a merger. Unsurprisingly, the Italian FTSEMIB was the worst performing European equity index today, dropping 2.24%.

US markets were initially concerned about these major losses at the beginning of trading. The S&P 500 (SPX) made a first hour low, dropping 0.68%. Over the weekend, Goldman Sachs announced in a conference call that it was downgrading its forecast for crude oil in 2014 to $75/barrel for West-Texas intermediate and $80/barrel for Brent. The reasoning for that downgrade was released early in the morning. This prompted a decline in crude prices by as much as 2% and sent shockwaves through global risk assets. They were both able to recover by the close of European trading.

The energy and materials sectors were the worst performers in today's session. Consumer staples and discretionary stocks that will benefit from lower gas prices, continued to lead the sector performance in the major indices.

Pending home sales for September rose a less-than-expected 0.3% from the prior month, up from a 1.0% decline. Economists had expected an increase of 1.0%. From a year ago, sales are up 3.0%.

Tomorrow's Financial Outlook

The week continues with more US economic data tomorrow. September durable goods orders will be reported in the morning, the first time in three months that they will not be influenced by large aircraft orders from the Farnborough airshow. Orders excluding aircraft are expected to rise by 0.5% from an increase of 0.7% in the month prior. Also scheduled for release is the August S&P/Case Shiller home price index and October Conference Board consumer confidence index.

Overnight, there are only a few global reports of note. China will report industrial profits for September and Japanese small business confidence.

It will however be the busiest week for earnings. Fifty-two major US companies are scheduled to report tomorrow. Notables include DuPont (DD), Cummins (CMI), Pfizer (PFE), Arch Coal (ACI), Aetna (AET), Gilead Sciences (GILD), Aflac (AFL), Anadarko Petroleum (APC), US Steel (X), Panera Bread (PNRA), Facebook (FB), Coach (COH), and Freeport-McMoran (FCX).

Twitter: @Minyanville

Follow the markets all day every day with a FREE 14 day trial to Buzz & Banter. Over 30 professional traders share their ideas in real-time. Learn more.
< Previous
  • 1
Next >
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.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.

Featured Videos