The Dow: Macro Fireworks


Yesterday morning, I suggested we could be in for a dose of eurozone-inspired volatility this week, and it appears to be coming along nicely. After an anti-austerity demonstration in Spain turned violent yesterday, the same is happening at today's general strike in Greece (the first one under the new coalition government). As a result:

  • The VSTOXX (the European equivalent of the VIX "fear" index) is up 7.5% to 23.05 as of 9:40 a.m. EDT.

  • The benchmark Spanish 10-year government bond is having its worst day since early August, with the yield having breached the 6% level intraday.

  • Major European markets are all in the red, with the FTSE 100, Germany's DAX, and France's CAC 40 nursing losses ranging between 1.2% and 2% as of 9:20 a.m. EDT.

The demonstrations in Greece and Spain are a stark reminder that, while the European Central Bank may have a big bazooka, no amount of bond-buying firepower will solve the eurozone crisis. That is, and will remain, the province of European governments -- and so far, their ability to address the problem has not inspired much confidence. There is a direct parallel with the U.S. in that Federal Reserve Chairman Ben Bernanke has warned lawmakers that they must address the "fiscal cliff" in order to avert its contractionary effects.

Poor sentiment isn't contained to Europe today, either: China's Shanghai Composite Index dipped below 2,000 for the first time in three years today. The index has declined just shy of 10% this quarter, making it the worst-performing global market behind Cyprus.

As of 9:52 a.m. EDT, the Dow (INDEX: ^DJI) is essentially unchanged from yesterday, but I expect it will be a struggle to close in positive territory today as investors decant the events in Europe. Meanwhile, with oil falling below $90 today, now could be exactly the right time to look at "3 Stocks for $100 Oil."

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