Major U.S. stock indices ended mixed on Tuesday as the Dow Industrials and S&P 500 gained some ground, while the NASDAQ Composite gave back early-session gains.  And even for the Dow and S&P, it was hardly a day of conviction as trading was shaky – losing all of its pre-market steam and again late in the day.

Yesterday’s winners were a mix of cyclical and safety sectors as energy shares led the way (crude closed up $1.55 to $99.76/bbl -- and is over $100 this morning as China had to reduced its RRR, I’ll explain tomorrow) with utilities and consumer staples also outperforming.  Tech, financials and industrials were the laggards.

So here’s how the day progressed: In pre-market activity, futures were up early as EU leaders continued to talk about their next great solution to their debt problem (the 15th attempt in 22 months).  Much of it was more of the same, such as leveraging up the EFSF by providing guarantees to investors to buy government debt.   However, that pre-market move fizzled as talks over leveraging the EFSF broke down yet again and that led to a lower open.  (Last night they appeared to agree to leveraging the bailout fund, but because of the harsh market conditions, they’re not able to make it large enough to matter.)

So this leaves the ECB, and word is EU ministers will go begging Draghi to take a Bernanke-style approach -- by law the ECB can’t buy bonds directly from governments so EU officials will put pressure on the central bank to channel money through the IMF in order to accomplish this goal, but I digress.

Then about an hour into trading we received the most-watched consumer confidence survey for November, which showed quite the jump.  Now, since it rallied from historic depths doesn’t exactly say much, but traders found reason to bid the market higher on the news (more on this data below the click).   This rally also lost momentum, but held onto enough of the gains for most stocks to close higher.

And for more out of Europe hit the click…

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U.S. stocks fired higher Monday, holding on to enough of the early-session gains to recoup a quarter of the past month’s losses, as European leaders began talking about the next solution to their debt crisis.  It was also reported that 80% of bond managers expect Bernanke to embark on QE3 by the spring.  (I’m sure we can count on the latter.  In terms of the former, I was guessing it had a shelf life of about 24 hours –although with stock-index futures higher this morning, it looks like it’s got a little more preservation.)

Risk was definitely on as evidenced by the yesterday’s leading sectors.  Basic material, energy and tech led the rally.  The traditional areas of safety such as utilities and consumer staples were the session’s laggards, up about half that of the broad market.

Even with yesterday’s enthusiasm, there was still talk of a eurozone collapse, which would result in either the expulsion or voluntary exit of the problem countries (largely the Southern European governments) from the zone.  So what would a “new” zone look like?   Pretty much as we surmised last week, a former Dutch politician predicted it would involve only the Northern countries.  When we discussed the subject a few days back, I had mentioned some fiscally-prudent Eastern government would remain in the zone too.  In any event, get ready for the “Neuro.”

And on that QE3 thing, with 80% of bond managers expecting it to take place in a few months (according to a JP Morgan survey) could it have much forward effect on the mortgage-backed assets the Fed is most interested in targeting?   It’s probably already been priced since these managers have certainly positioned to that expectation.  Thus, the only way to force mortgage rates yet lower (as will be the Fed’s ultimate goal this go aorund) is to buy more bonds than the market currently expects.  I think they will do so, whether it arrives via QE3 or QE4 it doesn’t matter – I expect the 30-year fixed mortgage to get pushed down to 3.75% and wouldn’t rule out 3.50% for a spell.

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U.S. stocks began a holiday-shortened session higher on Friday as traders believed EU officials would respond to the latest round of trouble in sovereign debt markets with yet another “solution.” However, instead of that, Greece hit the tape with their call that investors take a 75% cut on their bond holdings. The market reversed course on that news to close down for a seventh-straight session.

Strangely, financials joined safety sectors utilities and consumer staples in outperforming the broad market. Tech, energy and health care were the biggest losers.

So stocks fell, but crude didn’t follow suit as it rallied a bit to hold at the $96/bbl mark. The overall commodity complex did close lower as 14 of the CRB’s 19 components fell in price, but crude remains sticky, refusing to fall below $95 even as the broad stock market has slid 10% over the past month. In fact, it is back to $100/bbl this morning as stock-index futures ramp higher, but we’ll get to that.

As the European debt crisis reaches new heights, consumers in the U.S concentrated on the things that really matter: Mad lines of pushing, shoving, trampling and even mace attacks all in an attempt to get those sweet bargains. In a strange way, developments on both sides of the pond converge as each day it looks more like a pre-euro world. In Europe, it sure looks like we’ll see the return of the drachma, escudo, peseta and lira. In the U.S., according to one source, the best selling product on Black Friday was the Air Jordan Retro. It looks like the 1980s/90s are back in more ways than one. Now if we could just have the growth of those decades we’d actually be on to something.

But today’s a new day, or is it? This morning stock index futures are up big, presumably on the news that Black Friday weekend holiday sales were strong and this idea that European leaders have a plan to that will get the ECB to come in and buy sovereign debt with both hand, Bernanke style. You’d think the market would have figured out by now that when we get consumer spending numbers that outpace the labor market and income dynamics there’s payback effect in the following quarters. You’d also think the market would have figured out that the eurozone as we currently know it cannot be saved. But traders are traders, they’ll buy on any inkling of a day or two of gains. More on what’s occurring in Europe below…

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U.S. stocks sank for a sixth-straight session on Wednesday as the European scene continues to worsen and the day’s U.S. data did help.

As has been the case for 2011, safety was the name of the game Wednesday as consumer staples, health care and utilities outperformed.  Energy, basic materials and financials were the hardest hit.

The situation in Europe is outright nasty.  Wednesday morning there was that failed German bond auction, which was followed by the poorest manufacturing data in the eurozone since 2008 as its PMI number sank to 46.4 for November – a number below 50 marks contraction.   The PMI reading specifically out of Germany – remember, this is the backbone of the zone – printed 47.9.

And it’s more than just the manufacturing numbers in the zone that signal a major problem.  Their import activity is sliding (which is causing Chinese factory activity to contract), industrial orders posted the largest drop since the financial crisis began three years ago, their banks are having serious funding problems (relying heavily on the ECB), government bond auctions getting ugly and equity markets have slid 30-40% from recent highs.  And this all occurs for a eurozone that has already seen GDP decelerate to under 1% on an annual basis over the past couple of quarters.  I think it’s safe to say another European recession just two years after the previous contraction is inevitable and has probably already begun.

All the while, even with our own debt problems (check the chart below, the surge in tradable U.S. debt), our auctions have enjoyed a flood of demand (2, 5 and 7-yr auctions all saw huge bidding this week).  Where else are institutions going to put their money?   The U.S. Treasury market is the only place with the breadth and liquidity.

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U.S. stocks bounced in fairly dramatic fashion yesterday, as traders respond to anything that policymakers propose to magically wash away all of our debt woes, as the market failed to hold onto a mid-day surge that brought stocks off the intraday nadir to close lower.  Just below is a picture of the swoon:

The areas of safety generally reigned as health care and consumer staples were the only groups to close higher.  But not all of the safety trade was working as utilities led the market lower, followed by energy and financials.

So what caused the market’s sudden spike around 11:00 STL time?  It was news that the IMF has approved credit lines to member nations (think euro-zone countries) worth between 500% and 1,000% above their current quotas.  IMF member countries have had strict guidelines as to how much they can borrow, it’s based on the size of their annual contributions to the fund.  Well, as policymakers try everything and anything to make this debt problem go away, they have thrown those restrictions to the curb.  And what does it even mean that a country can borrow more than 10 times their erstwhile quota?  It means the U.S. is on the hook for much more of the IMF’s funding, as we are the largest contributor.  It’s a way of getting around the fact that the ECB has thus far refused to outright print money.  Conversely, Mr. Bernanke has no problem printing money, and this may be how that monetization makes its way to Europe, or at least as it’s drawn up.

However, the gains could not be held, maybe because it didn’t take long to figure out that this plan is not a solution or even a patch; the numbers still aren’t enough to fund either Italy’s or Spain’s refinancing requirements through 2012 and that’s probably generous.  And now we’ve got the first failed German auction on our hands.  This morning the 10-year German bund auction failed to capture the demand required to borrow all the money they intended to.  It’s being called the worst German auction ever – I suppose by “ever” they mean in the postwar era.  This makes the IMF’s plan even more of a joke.

Nice try though.  Maybe one of these days we’ll actually come to grips that yes, a debt problem can only be solved the hard way – via time, growth and some level of fiscal prudence.  We can implement growth-enhancing strategies that ease the economic pain in the meantime and pave the way for the levels of future growth that augment payroll gains, but the path is not an easy one as paying down debt never is.

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U.S. stocks sold off for a fifth session in six on Monday, but a rally in the final two hours erased roughly one-third of the morning losses.  Unfortunately, the price of oil, which had backtracked to $95.50/bbl, rebounded too to close at $97.50/bbl – and with stock-index futures up just a touch this morning, crude is back above $98/bbl as I type. 

Frankly, I think we should view yesterday’s 1.9% decline in stocks (as measured by the S&P 500) as a victory because the latest two-year auction showed a much greater run for safety.  The Treasury auctioned $35 billion of two-year paper and the bid-to-cover hit 4.07 (four bids for every $ offered) -- the highest since BTC records began in 1993.  And all this demand occurred at prices that result in a 0.28% yield.  The mentality:  Find a place that just gives me my money back. 

I don’t want to belabor the European subject this morning as we’ve spent much time discussing the debt problems in both the U.S. and Europe, along with the fact that policymakers implement strategies that do nothing but delay the inevitable as they cross their fingers and hope buying times does the trick. 

So straight to the point: European sovereign debt sits there waiting for the market to hammer rates higher again (the damage has been temporarily halted by an ECB that’s more aggressively begun to buy this paper – exception being Spanish bonds) and the EU banking implosion that will resume once these bonds trade lower again. 

So the market to watch for now is Spain as it is relatively free of central bank manipulation – and it continues to get clocked as a result.    That is, Draghi has yet to take his spending spree to Madrid.  And it’s not just the long-end of that curve that continues to watch rates go higher, but the three-month bill has doubled in a month’s time to 5.11%.  Draghi will very likely send his printing press to Spain, buying up as many Conquistador sovereigns as needed to offset the private-market selling.  But he hasn’t yet, so the continued back up in these yields shows what would be occurring in Italy (and surely France too) – it’s still one of the view places where the market is (for now) allowed to somewhat freely set prices.

On top of this, we have a U.S. Congress that’s unwilling to make the correct budgetary choices (and just three months removed from the debt-ceiling fiasco that led to a credit-rating downgrade for Uncle Sam).  Thus, we’ll go through the whole process yet again as Bianco Research says the debt ceiling of $15.19 trillion is expected to be reached again by year end. 

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U.S. stocks closed flat on Friday as the ECB came in to rescue key European sovereign debt from widening yet further (for now) – French, Italian and Spanish debt spreads (their interest rates relative to those of benchmark German bunds) rose to new records on Wednesday; it was a distress signal and ECB President Draghi answered the call.

Utilities, financials and consumer staples were Friday’s winners.  Tech, energy and telecoms weighed on the market.

For the week, the broad market slid 3.81%, marking the second decline in three weeks.  The S&P 500 remains 8% above the recent low hit in August, but considering nothing has been solved – either in Europe or here at home as we’re about to go through the whole debt ceiling issue yet again – investors need to mentally prepare not just for another slide but for this up, down and ultimately nowhere activity to continue for some time.

More below…

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U.S. stocks tried to stage a comeback yesterday, but rolled over in the final hour of trading right around the time that the euro began its pullback from positive territory.

Fitch came out and told markets that domestic banks could be hurt if the fiscal and financial problems of Europe worsen – nothing we didn’t already know, but enough to invoke fear and volatility.  All S&P 500 sectors declined with financials suffering the steepest losses.

After the click is commentary on yesterday’s economic releases.  

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U.S. stocks bounced after opening lower yesterday as FOMC member Charles Evans stated he expects the zero interest-rate policy to remain in place beyond mid-2013 (that mid-2013 is the timeline Bernanke set back in August as the market was tanking).

Also helping to whisk away concerns (for the moment I guess) was word that Mario Monti (the guy that was supposed to the new PM but will now accept the position of Finance Minister) will be able to form a new government to battle the debt crisis – there was speculation prior to the open that he was having difficulty bringing members of Parliament along with his plan.

I’d like to say that a good retail sales report helped the market advance, but that data was out pre-market and the major indices still opened lower.  It’s still all about Europe.

The bond market didn’t share the stock market’s apparent optimism as U.S. Treasurys closed flat – the two year at a 0.24% yield and the 10-year at 2.06%.  Bond traders remain quite concerned over the fact that key euro-zone interest-rate spreads blew out again as just about the entire Italian yield curved backed up to 7% and French and Spanish spreads hit new wides against the German benchmark.  This morning those spread are wider yet, with what is supposed to be a AAA France watching their yields hit nearly 200 over German bunds as Unicredit (Italy’s largest bank) goes running for Unihelp by asking the ECB for more funding.

Blow Out:

This doesn’t only mean trouble for those governments, but much more for the EU banking system that holds most of this stuff.  So long as the ECB remains unwilling to engage in a Bernanke-style level of manipulation (become aggressive enough in their bond-buying campaign to overwhelm the selling), pessimism is likely to drive Treasurys to lower yields/higher prices.

But let’s take a break from any more specific comments on what’s occurring across the pond; we’ve got lots of U.S. data to touch on.  Details below the click…

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Over the past several months, I’ve talked a lot about volatility and how it reflects the uncertainty about the future.  The sovereign debt issues in Europe and the U.S. have led to fears of another recession.  As a result, market participants are applying higher discounts to risky assets, which is another way of saying that they require a higher return in light of the uncertainty.

Recent economic data have helped ease concerns of the U.S. economy sliding back into a recession, but the labor market is still struggling and the crisis in Europe will continue to pressure markets until policy makers come up with a durable solution. Nobody can predict what will happen next, but I’ve put together a few thoughts that might make the up-and-down markets a tad more tolerable.

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