The US stock market will open higher this morning due to the Spanish bank bailout announced this weekend.
The financing details are not finalized, but European finance ministers agreed to a $125 billion bailout to shore up Spanish banks. That was necessary to prevent a bank run or immediate credit crisis in Spain. It doesn't address Spain's governmental fiscal problems, however, and as the US experience shows, a bank bailout is just an early step towards reviving an economy. Credit cycles take a long time to correct, and Spain experienced a massive real estate bubble-crash cycle that is a long way from being over.
Regardless, the elimination of a potential negative has provided US stocks with a near-term boost.
Now, the attention may well shift to political issues in Europe. Greece holds elections Sunday. If the anti-bailout parties win, talk of Greece exiting the euro-zone will increase. That, or even an inconclusive election, could create uncertainty that will roil the financial markets.
The French elections this weekend received little attention, but also aren't encouraging with regard to the fiscal reform that Europe needs. The Socialists look headed towards a legislative majority following this upcoming Sunday's runoff elections. The Socialist agenda will be constrained by the bond vigilantes, but reform is also unlikely.
Enough about Europe. Let's talk about the US market-moving events. There isn't anything.
Even the sports news is European today. Nadal won the French Open, and Italy beat Spain 1-1 in the Euro 2012 Championship (to reprise an old Harvard Crimson headline).
The market rally of last week will continue this morning. There has been some good news and a reduction of risk, but the move also is a bounce off severely oversold conditions. Whether the rally is sustainable over the next couple of weeks is questionable.
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