Volatile Europe Swings Around the Flat Line

Equity futures: Dow +5.00. S&P +1.30. Nasdaq +1.50. Japanese Nikkei -100.00. German Dax -12.00.

European markets opened the trading session with volatility as premarket futures trade battled cash market direction. As the session progressed, the major indices started heading lower at a relatively strong pace before reversing higher to test the highs of the premarket trading ranges. Earlier in the day, the Asian markets closed lower and the selloff continued in the futures markets, with Nikkei futures dropping as much as 1% more than the cash market close.

The two-week-old news that the real estate developer Nakheel, owned by the Dubai Government, is looking to delay payments on some of its debt has put the market in a state of heightened alertness that just cannot seem to be easily broken. The timing of this particular news report is critical and is at a time that most investors are looking for guidance because the pace of equity growth observed since March is too strong for the state of the global economy, which moves forward at a sluggish pace at best.

Since the session started, the German Dax fell and regained 0.75% and the U.K. FTSE lost and regained 0.50%, following the Austria's ATX index that plunged 2.15%. Trading was mixed in the emerging European markets, with Greece continuing its selloff after Tuesday's debt downgrade. However, Hungary's stock exchange added a few points in Wednesday morning trade, now trading up 0.10%. Interestingly, S&P futures were unmoved during the overnight global session, and that has to be seen as a bullish sign.

S&P futures moved into long mode on Nov. 13 and have held that trend, which has allowed the tests of the four-hour chart support to be bought. There is a tight sideways channel forming, and that is allowing the move from overbought to oversold and back again to be completed over a four- to five-day period.

S&P futures hit the lows of the week on Tuesday, which pushed the major currency pairs lower. Overall, we are looking for a near-term recovery on the majors and a decline at the same time on dollar index, which matches perfectly with S&P expectations.

On the chart below we see that the market traded into the 1090 level and into the area around the diagonal support line, connected from 1025, and wave 1) lows. From this zone, we are expecting a bounce to the upside, near the 1105 area, before the downtrend can continue.

A break of 1066 support will confirm a bear market, while a move through the 1118 top will signal a more complex wave 5) formation of an ending diagonal.

The media and the travel and leisure sectors were the only ones that managed to stay easily in the green in Wednesday trade. Even so, the gains seen in these two sectors were rather small, with media companies advancing only 0.05% while the travel & leisure sector gained 0.30%. Carnival added 1.40%, Intercontinental added 1.26% and British Sky rose 1.10%. These three companies were also the top performers in the U.K. FTSE. In the Swiss stock market, the media company Tamedia advanced 1.02%, also among the top gainers within the national index.

The financial sector was split across Europe. In U.K. and France, the banking sector stayed in the green, but the gains were rather small. RBS, Standard Chartered, Lloyds, HBOS, Dexia and Credit Agricole added between 0.20% and 0.70%. The banking sector initially acted as a drag in Germany, Switzerland and Holland, where Commerbank shed 1%, ING plunged 2.50% and UBS fell 1.75%.

The drag of the financial was also seen in the Austrian ATX market, which was the worst performer among the European mature stock markets. Raiffeisen plunged 4.30%, while Erste Group fell 3.75%. The main reason behind this selloff is the strong exposure of the Austrian financial system to Eastern European trade.

The European session was clear of any red-flag reports, but at 7:30 a.m. EST the market will prepare for U.K.'s annual pre-budget release. The effects of this report are likely to be contained in the European market, and mainly in the U.K. stock market and value of the pound.

Crude oil was recently trading at $73.70 a barrel, higher by $1.10. Gold was recently trading lower by $4.30 to $1139.10.

---

At the time of publication, Hague had no positions in the stocks mentioned.

Marco Hague is one of the founders and principals of The London Forex Broadsheet (commonly known as TheLFB), a global forex trader portal with headquarters in the U.S. Hague began his career with the Bank of England dealing with foreign exchange control, and he has been trading for the last three decades. He has been involved with institutional risk asset ratio analysis and the implementation and maintenance of institutional trade desks globally.