Equities followed through from Friday's gap fill and positive initial exit polls from the Italian Senate election continued to drive them higher as the market opened. However, once more ballots were tallied, it was clear that the favorite, Bersani, was going to lose his majority in the Italian Senate to ousted Prime Minister Silvio Berlusconi. This was met negatively by the market since it was the austerity measures that interim Prime Minister Monti had enacted that enabled European support to drive Italian equities from its lows. By the US market close, it appeared that Berlusconi would gain the majority of seats in both the lower and upper houses of Italian parliament, though questions over a hung parliament remain.
Risk assets continued to deteriorate throughout the day due to severe weakness in the EURJPY. The S&P 500 opened up more than 7 points and continued to rally in the morning, but the sudden release of Italian exit polls caused deterioration throughout the day that ended in a brisk sell-off to close the day's trading session. The EURJPY finished US trading at 119.30, a full 5.76 points down from its intraday high, an extreme move.
US sector laggards included financials (-2.87%) and housing (-3.36%). In particular, money center banks struggled mightily. Goldman Sachs (GS) and Morgan Stanley (MS) both dropped over 6%.
In the news, Japanese Prime Minister Abe nominated Asian Development Bank president Haruhiko Kuroda as governor of the Bank of Japan and the previous favorite Kikuo Iwata as deputy governor. Kuroda, compared to Iwata, is a much more moderate governor and the JPY may reflect that in the future.
On the US economic front, the Dallas Fed regional manufacturing activity survey declined to 2.2 from last month's 5.5, below the 3.5 estimate. Internally, the survey showed weakness in its future outlook and the only positive subindex appeared to be leftover strength from the prior month's huge spike in orders.
Tomorrow's Financial Outlook
Overnight action in US equity futures will be key as foreigners react to the action in foreign exchange and US markets. On the US economic data front, housing data in the form of the S&P/Case-Shiller and monthly NAR home price indices are on the schedule for 9 a.m. ET. Later in the morning will be new home sales followed by February's Conference Board Consumer Confidence reading. All economic data is expected to rise modestly month-to-month.
No economic data in Europe on the calendar, but Japan will release small business confidence before the US market open and retail trade after the US market close.
On the earnings front, Macy's (M), AutoZone (AZO), Home Depot (HD), RadioShack (RSH), HollyFrontier (HFC), Priceline (PCLN), and Gulfport Energy (GPOR) are scheduled to report.