(Posted 21 July 2012)  Well, that didn’t last long.   The recent EU bank bailout was widely applauded for addressing some of structural flaws of the European banking system.  Financial markets had reacted favourably to the June 29 deal as the stock market rallied strongly and bond yields fell.  Before the deal, the financially troubled members of the EU like Spain and Italy had seen their government yields rise towards the critical 7% level as the bond market demanded a greater risk premium.  7% was seen as the threshold beyond which their debt could no longer be serviced and would force a full sovereign bailout from the IMF.  But the summit deal soothed investor anxiety and pushed yields on the benchmark Spanish 10-year bond back below 6.5%.  

But all that optimism and confidence seems to have vanished now as Spanish yields have reached an all-time high topping out at 7.22%.  Italian bonds remained in an uncomfortable purgatory just above 6%.  It seems that buyers of European debt are demanding more tangible evidence from the EU leadership that the grand plans will actually be implemented.   So far, there has been little actual progress made on the restructuring.  While the 7% yields are unsustainable in the long run, this may not invite an immediate intervention from the European Central Bank.  That is because shorter term yields are still relatively manageable.  The 1-year bond is still less than 4%, so the yield curve retains a relatively normal upward slope.  The gap between the short end and the long end is starting to flatten, however, so this will be one to watch in the coming days and weeks.  Emergency bailouts are more likely when the spread gets below 100 basis points and the short end yield climbs towards 6% while the long end remains elevated.  This is what happened with Greece and Ireland.

The absence of any post-summit stock rally in July is not that surprising given the current planetary situation.  Jupiter has had its time in the spotlight here and stocks have generally performed fairly well.  The US market climbed to a post summit high last week.  This is pretty much what we had expected given Jupiter’s aspects with Uranus and Pluto.  But now Jupiter is moving away from those aspects, so it is unclear where its positive energy will come from in the future. Jupiter is a bit like a central bank in that sense: without fresh stimulus from the Fed, the ECB or the RBI, markets are less likely to rise.  Similarly, without new Jupiter aspects down the road, it’s less clear how the market can rally any further.  Indeed, with Saturn looking to intensify in the near term, the downside risk looks like it is increasing.

The US stock market extended its gains last week as Ben Bernanke paid appropriate lip service to the possibility of more stimulus if the economy got any worse.  Investors have come to rely on this "Bernanke put" as a kind of backstop for whatever misfortune may befall them.  As long as Ben has their back, the market will not be permitted to fall very far. The Dow rose less than 1% closing at 12,822 while the S&P 500 finished at 1362.  Indian markets were slightly weaker, however, as the Sensex closed at 17,158 while the Nifty ended the week at 5205.  The week was somewhat less exciting than I thought it might be, although it did follow the approximate planetary road map laid out in last week’s forecast.   The stronger Mars influence early in the week coincided with some declines before the trend reversed higher in midweek. This corresponded fairly closely with the Jupiter aspects to Uranus and Pluto.

This week may be a somewhat tougher road for the markets.  Saturn is now in the last degree of Virgo so this could increase pessimistic energy ahead of its exact ingress on August 1.  As an added burden, the Sun will be in aspect with Rahu midweek so this is likely to create some uncertainty, especially around governments.  Gold may also suffer as a result of this transit.  In addition,  Mercury, now retrograde, will come under the influence of Rahu later in the week.  While there are a few negative influences here, we can still identify some sources of optimism.  Before it tangles with Rahu, Mercury will be in aspect with Jupiter early in the week and then it will align with Uranus and Pluto.  Both of these short term Mercury aspects are likely to correspond with some upside.  So the overall picture is somewhat mixed.  The wild card here is that Saturn is gaining strength and could soon undermine the best laid plans for recovery.

Transits for Wednesday 25 July 2012 9.30 a.m. New York