Halftime Pt 1: Europe's Results Matter For US Investors?
Traders were closely watching the action in the S&P and Dow in the wake of Europe's stress test results. Only 7 out of 91 banks failed the tests - a surprisingly low number and markets were little changed by the results.
If the numbers are accurate “we either made a mountain out of a mole hill,” says CNBC’s Steve Liesman. “Or those results tell us that this test is deeply flawed.”
The question becomes did the markets have it wrong? How should you position now?
Instant insights with the Fast Money Traders
Ultimately the market will suss out which banks have all the debt and which don’t and by Monday we should know the answer, says Brian Kelly of Kanundrum. I'd consider a long position in the euro here.
But US investors might want to be more focused on numbers coming out of Caterpillar , Ford and other US bellwethers, Kelly adds. They all suggest the US economy is growing. If the S&P breaks above 1100 I think we may be looking at a tradable rally.
Unchanged in the wake of stress test results says to me the US markets want to get past Europe and move onto the next hurdle, adds Steve Grasso of Stuart Frankel.
I think the market is much more concerned about new reports which suggest Chinese banks may struggle to recoup about 23 percent of the 7.7 trillion yuan ($1.1 trillion) they’ve lent to finance local government infrastructure projects, Grasso says.
As a result I think the market sells off into the close. I’d either get short or get flat
My trade on Europe is buy the rumor and sell the fact, says Joe Terranova. But looking at the US markets I see no reason to pair back long positions. I consider strong earnings reports from Caterpillar and other industrials as well as GE’s dividend increase signs the recovery is in tact. It says to me to stay long.
When I look at Europe's banks, personally, I feel like there’s a lot more digging that needs to be done. If regulators aren’t really stressing banks then the results don’t tell us anything. But if you're looking for a trade look at a long position in a US company; McDonald's . On the pullback I'm lovin' it!
The inflection point for Europe’s bank stocks isn’t now, explains widely followed analyst Dick Bove of Rochdale. It occurred back in March. That’s when banks started to move up sharply. This stress test has no value; in March they passed a real world stress test when we saw money flow back into the banking system, junk bond yields coming down, and reasonable interest rates.
EUROPE RESULTS A CLOSER LOOK
Looking at the results a little more closely failures in European bank stress tests were concentrated in Spain, with several savings banks failing according to data released by various national authorities across the European Union Friday.
Only one government-owned bank in Germany failed the stress tests, while French top banks, Portuguese Italian, Finnish and Swedish top banks all passed.
The German bank is nationalized Hypo Real Estate bank, and officials said because the bank's special situation, it should have not been included in the tests.
Greece's ATEBANK also failed.
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Trader disclosure: On July 23, 2010, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Terranova owns Coper; Terranova owns (FCX); Terranova owns (MOS); Terranova owns (GLD); Grasso owns (BAC), (BA), (BGP), (C), (CSCO), (DYN), (JPM), (LPX), (MO)
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