EU Crisis: ECB Cuts Rates, But Is It Enough?

The ECB failed to make the dramatic recession-fighting decisions hoped for by EU officials and analysts – instead it made modest moves to cut interest rates and offer banks long-term funds.

ECB president, Mario Draghi, made it explicitly clear that the national bank will not, and cannot, play a strong role in averting the financial crisis and reining in the looming recession.

According to Reuters, he “discouraged expectations that the bank would massively step up buying of government bonds if European Union leaders agree on moves towards closer fiscal union at a crucial Brussels summit.”

Instead, the ECB says the euro zone’s EFSF rescue fund should remain the main tool to fight bond market contagion, despite the limits of its leverage. He added that it would be illegal for the ECB or other central banks to lend money to the IMF to buy euro bonds. (via Reuters)

Of course, the ECB will not be completely out of the picture. “They’ll stay in the market but will only buy small amounts. It’s governments who’ll have to do the heavy lifting,” explains James Nixon, chief European economist at Societe Generale SA in London.

Reaction

The market has been increasingly convinced that the ECB would save the euro. This setback sent global markets into a dive and put further pressure on the Summit in Brussels. Investors are still hoping for a make-it-or-break it measure to come from the meetings.

But they shouldn’t get their hopes up. German Chancellor Angela Merkel played down the Summit’s expectations by saying the meeting will be “one stop” along the way to ending the EU’s debt troubles.

Investing Ideas

But could whatever news that comes out of Brussels drag the market down further? How much more negativity could the market price in?

Analysts expect that if the news comes out even slightly positive that the markets may rally, or at least recover some of today’s losses.

To find ideas on which stocks might be in for the greatest rallies, we created a list of large cap companies with bearish short trends. Short sellers think these stocks will drop in price, but will these names see a short squeeze if good news comes out of Brussels?

1. Avalonbay Communities Inc. (AVB, Earnings, Analysts, Financials): Engages in the development, redevelopment, acquisition, ownership, and operation of multifamily communities in the United States. Market cap of $11.86B. Short float at 10.67%. Shares shorted have increased from 9.74M to 9.17M month-over-month, a change representing 0.60% of the company’s 94.24M share float.

2. Continental Resources Inc. (CLR, Earnings, Analysts, Financials): Engages in the exploration and production of crude oil and natural gas primarily in the north, south, and east regions of the United States. Market cap of $12.72B. Short float at 16.85%. Shares shorted have increased from 7.12M to 6.29M month-over-month, a change representing 1.48% of the company’s 56.06M share float.

3. Campbell Soup Co. (CPB, Earnings, Analysts, Financials): Engages in the manufacture and marketing of branded convenience food products worldwide. Market cap of $10.53B. Short float at 8.2%. Shares shorted have increased from 14.60M to 12.99M month-over-month, a change representing 1.01% of the company’s 159.19M share float.

4. Exelon Corporation (EXC, Earnings, Analysts, Financials): Operates as a utility services holding company in the United States. Market cap of $28.93B. Short float at 5.64%. Shares shorted have increased from 37.32M to 31.25M month-over-month, a change representing 0.92% of the company’s 662.41M share float.

5. FMC Technologies, Inc. (FTI, Earnings, Analysts, Financials): Provides technology solutions for the energy industry and other industrial markets. Market cap of $12.36B. Short float at 6.99%. Shares shorted have increased from 16.60M to 15.23M month-over-month, a change representing 0.58% of the company’s 234.99M share float.

6. General Motors Company (GM, Earnings, Analysts, Financials): Operates as a global automaker. Market cap of $34.33B. Short float at 6.8%. Shares shorted have increased from 49.39M to 43.43M month-over-month, a change representing 0.81% of the company’s 731.64M share float.

7. Ivanhoe Mines Ltd. (IVN, Earnings, Analysts, Financials): Operates as an exploration and development company. Market cap of $16.63B. Short float at 7.31%. Shares shorted have increased from 20.10M to 17.50M month-over-month, a change representing 1.12% of the company’s 232.66M share float.

(Written by Rebecca Lipman. Short data sourced from Yahoo! Finance.)

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