Pressure on E.U. Equities Grows as Negative News Trumps Hope

(eToro Blog) European equities are finding it difficult to establish clear direction as more and more negative Eurozone-related news offsets investors’ hopes for central banks’ accommodations. Late yesterday, still another ratings agency downgraded Italian sovereign debt; this time Egan-Jones cut Italy’s B-plus to CCC-plus. The agency cited high levels of regional governmental debt, general weakness in the Italian banking sector and strong doubts that Italy will be able to independently support its own banks.

A recent analysis from Citi Group isn’t helping to improve sentiment either; the chief economist there forecast that, given prolonged weakness, there is a 90% chance that Greece will be compelled to exit the Eurozone within the next nine months. Indeed, analysts say that the Troika which oversees the bailout fund for Greece is growing more reluctant to continue footing Greece’s bills and the signs are clear that there is major disagreement over the way forward among the three organizations. Earlier this week, the European Commission confirmed that Greece’s next bailout payment would be delayed until September, and last week the ECB said that it would not accept Greek debt as collateral until a report from the Troika is completed which might not be until late next month. The Greek government will have to turn to its own central bank for loans, provided their own coffers can sufficiently cover the requests.

The German DAX had closed higher yesterday as did the French CAC-40; at the opening bell, both indices move immediately lower with the DAX down nearly 30 points an the CAC-40 down 1 point. OpenBook trader DonDimon from Germany has a 39% stake in the DAX and closed out several profitable positions over the past 24-hours, working both long and short; most recently a long position returned an 11.48% gain, but prior to that a pair of shorts returned an average 7% return. OpenBook trader provost05 from Canada has a very small holding in the DAX, only 2.5%, but the trader’s allocation returned 56.4% in the past month. A recently closed short provided the trader with a 22.8% gain, while for the entire portfolio the trader has a recorded profit in the same period of over 300%.

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