More Headlines Moving Stocks

The S&P 500 moved over 12 points to the highs of the day on a report from the Guardian in London:

"France and Germany have reached agreement to boost the eurozone's rescue fund to €2tn as part of a 'comprehensive plan' to resolve the sovereign debt crisis that the eurozone summit should endorse this weekend, EU diplomats said."

The story notes that a deal has been reached to use the EFSFas an insurance policy to offer first-loss guarantees for bondholders, and to recapitalize important European banks to meet higher 9 percent capital ratios.

This seems to contradict earlier reports that Merkel was not interested in leveraging up the EFSF.

Levering the EFSF will be met with howls of protest, since it increases risk for the EFSF, but those objections will likely be overruled.

What really matters in the last hour of trading? European headlines, not ETFs or high-frequency traders. For everyone who keeps complaining about the influence of ETFs or high frequency traders on the last hour of trading, it is headline risk that is moving the markets in the past two months — literally, headlines.

Today, a Guardian article. At 2:35pm ET. But last week, I noted that Birinyi had done a study that concluded that European newspaper headlines, which were putting their papers to bed in the last hour of trading in the U.S., were affecting stock trading.

"Since the beginning of September, on nine out of the ten days with the most volatile final hour of trading there has been a news story published on the European debt crisis in the late afternoon," analyst Kevin Pleines of Birinyi wrote. The one exception was an FOMC day.

"We believe that traders (and investors) are searching for any clarity on an eventual solution to European debt problems and hence when any light is shed on the opaqueness of the situation, however mundane, traders react accordingly."

ETF hearings tomorrow: much ado about nothing? I know, blame leveraged and inverse ETFs for the volatility in the last hour. There's a hearing tomorrow in a Senate banking subcommittee to look at the role of ETFs in trading.

I've commented on this many times, but I commend an article from the FT (Alphaville) on this today. They quote Nicolas Colas, chief market strategist at ConvergeEx:

"Anecdotes abound; proof seems in short supply. What is provable, as the numbers shown above indicate, is that this segment of the ETF marketplace is very small relative to almost any other category. Anything is possible, of course, but the assertion that $36 billion of ETF products can consistently determine the intraday course of U.S. stock markets needs more substantiation than is currently on offer."

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