Oil prices, energy stocks, the euro currency and European
stock markets sold off the most Thursday following news that the
European Central Bank cut its eurozone economic outlook for 2013.
It left interest rates unchanged owing to tame inflation.
In addition, data confirmed the eurozone fell into recession
in the third quarter. But considering that European stock markets
are trading near their 52-week highs and remain in strong
uptrends, it suggests the market has already priced the recession
and sees a recovery ahead.
January crude oil futures contracts traded on the New York
Mercantile Exchange fell 1.82% to 86.28 a barrel.
United States Oil (
) -- the largest ETF tracking crude traded in the U.S. -- dropped
1.96% to 31.59. It has been trending lower since March and trades
below both its 50- and 200-day moving averages, indicating severe
weakness. Downward pressure has come from excess production
resulting from fracking technologies and more recently concerns
that demand may be weakening. USO lost 9.42% the past three
months and 15.46% year to date, according to Morningstar.
SPDR S&P Oil & Gas Exploration & Production (
) gave back 0.26% after paring bigger losses at the open. It's
ahead 2.36% over three months and 3.07% year to date vs. 0.96%
and 14.43% for the SPDR S&P 500 (
) over the same periods.
CurrencyShares Euro Trust (
), measuring the 17-nation currency against the greenback,
plunged 0.86% to 128.70. It was the biggest one-day loss in five
weeks. It's now flat year to date.
"The major move down in the euro was ignited by (ECB President
Mario) Draghi admitting that the committee had discussed cutting
interest rates and the possibility of negative interest rates,"
said an email from Wojtek Zarzycki, chief investment officer at
Optimal Investing, based in Toronto and New York, with $150
million in assets under management. "His was the tape bomb that
sent the euro down to the day's lows."
European Market Action
IShares MSCI Italy Index (
) fell the most among the European markets, sliding 1.47% to
12.70. It's still trading above both its 50- and 200-day
averages, which makes Thursday's loss a pullback in an uptrend.
It's returned 9.7% in the past three months and 10.1% year to
IShares MSCI France Index (EWQ) tumbled 0.61% to 22.68. It's
trading near a 52-week high and has been in a confirmed uptrend
since Nov. 23. EWQ is up 10.45% the past three months and 19.76%
year to date.
IShares MSCI EAFE Index (EFA), tracking developed foreign
markets, was nearly flat at 55.39. It's also trading near its
52-week high, continuing an uptrend. It's ahead 8.12% over three
months and 14.4% year to date.
"In part due to proactive ECB (European Central Bank) policy,
the consensus sees the eurozone recession ending by Q3 2013,
helping drive a modest, back-end loaded 0.3% economic expansion
next year," Alec Young, global equity strategist at S&P
Capital IQ, wrote an in email. "Overall, we think the worst of
the European sovereign debt crisis is likely behind us and that a
dreaded 'Lehman moment' in Europe is improbable if the Draghi
"That said, we don't rule out periodic bouts of heightened
sovereign stress, given the political wildcards involved, but
relative to the extreme stress and volatility of recent years, we
think things will likely be calmer."
The market's strength suggests it expects the euro currency
and European Union to remain intact, says John Burke, an Iselin,
N.J.-based financial adviser at Raymond James Financial
Euro Zone Economic Outlook
The eurozone fell into a modest recession in the third
quarter. Eurozone gross domestic product shrank by 0.1%
quarter-over-quarter in the third quarter, after contracting 0.2%
in the second quarter, according to Eurostat. It marked the third
quarter-over-quarter contraction in four quarters. The exception
was flat GDP in the first quarter of this year.
"GDP contraction in the third quarter was not limited to the
southern countries, as Dutch GDP plunged 1.1% quarter-on-quarter
while both Austrian and Finnish GDP edged down by 0.1%. In
addition, Belgian GDP was only flat," Howard Archer, European
economist at IHS Global Insight, wrote in a note Thursday.
The eurozone GDP will likely shrink further in the fourth
quarter as Germany and France's economies are in severe danger of
declining, Archer concludes. He forecasts eurozone GDP will
contract 0.2% in 2013.
"Indeed, we suspect that the eurozone faces extended modestly
contracting or flat quarter-on-quarter GDP in the face of
tightening fiscal policy in many countries, high and rising
unemployment, limited consumer purchasing power and likely
recurrent eurozone sovereign debt tensions," Archer added. "In
such an environment, business investment is likely to be weak,
especially as credit conditions are generally tight."
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