A bit of fear is OK
by Peter Switzer
Profit taking was stepped up on global stock markets with bad factory news out of China and weaker economic news from Europe mixing with fears in the USA that QE3 is not going to happen.
We’re in the panicky stage before the expected big event in Europe and ironically a bit of fear and selling off could be a good thing as it would remind the European Central Bank (ECB) and the European Union (EU) generally that a big, stimulatory play has to happen.
If it doesn’t, outrageous claims by Marc Faber of the Gloom Boom & Doom Report that a worldwide recession is a 100 per cent chance just might become a reality.
Wall Street overnight
To scores on Wall Street and the Dow lost 115.3 points or 0.88 per cent to end at 13,057.46 while the S&P 500 slipped 11.41 points to 0.81 per cent to 1402.08.
Not surprisingly in Europe, the German DAX was down 0.97 per cent while the French CAC 40 gave up 0.84 per cent. As you can see, markets are now in for a test or two ahead of September 6 when the ECB better come up with a credible plan to bring down borrowing costs for the likes of Spain and Italy.
Here are the big market drivers that pushed stock prices down:
- While the latest Federal Reserve minutes pointed at QE3 being likely if the economy didn’t pick up soon, St. Louis Fed President James Bullard basically told the market not to get too cocky about this expectation! This did not go over well with the pros on Wall Street.
- China’s flash PMI reading from HSBC was weaker than expected meaning factory production is worse than tipped. This wasn’t a good global growth indicator.
- Not surprisingly, oil prices fell below the 200-day moving average, which is not good for energy stocks.
- And there was more weak data on Germany’s private sector, which has contracted for four months on a trot.
While the above hurt stocks, there was some more good news for the all-important housing sector with US new home sales up 3.6 per cent last month. Also the flash PMI for the USA was up slightly but all of these small green shoots need to be watered by the ECB on September 6 and this is why I continually warn that this is the main game for stocks and the global economy.
I can see the value of a bit of panic if it makes the EU leaders deliver but if it doesn’t, the bear market will run its usual course in terms of time, which would be another two to three years!
Only astute intervention can expedite the early farewell to our furry fiends that have rocked stock markets since 2001.
Important information:This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.
Published on: Friday, August 24, 2012
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