Draghi and Europe Drag On Markets

Mario Draghi called the potential breakup of the Euorpean Union “morbid speculation” but doused any hopes of large scale bond buying by the European Central Bank.

He voiced concern over the precarious economic condition of Europe and cited substantial risks to the economy.

The Euro Dollar ETF, Currency Shares Euro Trust fell 0.3% on the day.

European finance ministers announced that Euro  members will boost International Monetary Fund resources by 150 Billion Euros that will come as bilateral loans. Britain may or may not participate and will announce its decision early in 2012.

The Financial Sector was battered by news that Bank of America dropped below the psychologically important $5 level during intraday trading but managed to close at $5.00 for a decline of 3.8% on the day.  Financial sector exchange traded funds like SPDR KBW Bank ETF dropped 2.4% and iShares U.S. Dow Jones Financial ETF dropped 1.9%.

Major U.S. stock indexes also suffered significant declines on disappointment over Europe with the Dow Jones Industrial Average declining 100 points, -0.84%, and the S&P 500 dropping 1.2%.

However, the ECB is buying bonds with 3 billion Euros for the week of December 16, up significantly from previous purchases, and tomorrow it begins its program of unlimited three year loans which is a major development in this ongoing crisis and could ease pressure on the European banking system and the region’s sovereign bonds.

So after early hopes that European leaders were finally getting in front of this crisis, global investors were again left disappointed by either lack of action or actions that were seen as not forceful enough to stem the crisis. Response to tomorrow’s initiation of the new ECB loan program will offer pivotal clues as to the future direction of this ongoing crisis.

Disclaimer:  Wall Street Sector Selector actively trades a wide range of exchange traded funds (ETFs) and positions can change at any time.