Another good day – can it last?
by Peter Switzer
Give Wall Street good news and expect a good reaction and that’s what happened overnight. The Dow put on 254.71 points, which was a 2.26 per cent gain.
Meanwhile, the S&P 500 closed at 1210.08, which was a 33.28 point or 2.83 per cent rise. Happy days! But what happened to the negativity?
Provided some more good news can follow, given the S&P index ended above 1207 (an important level for technical traders), then we could go higher. But on news flow — Europe’s debt dramas and America’s double dip recession concerns will remain centre stage.
And we shouldn’t forget August has been a shocker with the month looking like it could be the worst since May 2010. But that reminds us that we have been here before and it was only a year ago and what happened after it? Yep, we rallied into the end of the year and I reckon history will repeat, provided the Europeans and Yanks can come up with some credible actions to impress a skittish market.
The Americans did deliver overnight with some better economic data.
Despite the worries in the States, consumer spending went up solidly by 0.8 percent in July. It was the best result for five months and it beat forecasts.
However, pending home sales were a tick lower than tipped.
Meanwhile, the White House has changed economists with Princeton University’s economist, Alan Krueger, given the top job.
And even in Europe there was some positive market news with the announced merger of Eurobank and Alpha Bank in Greece. This even helped Greek stocks and there’s a belief that we will see more mergers in Europe to solidify the banking system.
On the other hand, there’s a Greek-Finland matter that’s a potential problem for Europe’s bailout plans.
Finland wants Greek state assets to be shifted to a Luxembourg-based holding company and held as security for new loans to Athens. Without it, Finland doesn’t want to play ball with the bailout and a pull-out could rock confidence about the rescue operation.
The small country is only putting in 1.4 billion euro but it’s triple-A rated credit-wise and it doesn’t want the Greeks to ruin it. However, the demand has seen the likes of Austria, Slovenia and Slovakia ask for the same deal.
The Greeks have been dragging the chain with its privitisation of state assets and this Finnish demand is putting the acid test on whether the Greeks can be trusted.
This is a new worry for Europe and global stock markets.
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: Tuesday, August 30, 2011
The Switzer Super Report is a newsletter and website for self managed super funds. With exclusive commentary from Peter Switzer and Paul Rickard the Switzer Super Report will help you maximise your after tax investment returns and grow your DIY Super. Click here for a free trial or subscribe today.