By: Andrew Keene
Analysts began 2013 with a cautiously optimistic forecast for Europe, citing a Greek exit and further deterioration in the Spanish economy as the biggest short terms threats to economic stability.
Recent news suggests the path ahead, at least in the near-term, will be a rough one. Last week Fitch downgraded the Italian credit rating one notch from A- to BBB+, sending stocks downward and creating nervousness among investors. Reasons cited for the downgraded included the negative outlook, high debt levels, weak economy, and political uncertainty following the recent elections. The Italian political establishment is still attempting to form a government, with prolonged deadlock having the potential to further damage the economy.
Data on French industrial production contributed to the nervousness, as Europe's second largest economy appears to be poised to enter its third recession in four years. While consensus estimates predicted 0.2 percent drop, output reportedly fell by 1.2 percent. French unemployment is expected to climb to 10.7 percent this year in what would be a 13 year high.
The Euro declined last week on favorable US employment data and this weekend's news should extend the decline. EU leaders are scheduled to meet on Thursday and Friday to discuss terms for a Cyprus bailout, the fifth rescue of its kind since 2009.
The Stoxx Europe 600 Index (SXXP) fell from a 4 1/2- year high on the news, in what was perceived to be a wake up call to how far the crisis is from over.
My Trade: Selling the FXE April 129-130 Bear Call Spread for $.50
Risk: $50 per 1 lot
Reward: $50 per 1 lot
Breakeven: $139.50
I make money if stock is flat, lower, or up less than .8%