Boom or bust this week
by Peter Switzer
It’s a boom or bust week with the central banks of Europe, the UK and the USA holding all of the trump cards. If they play their cards right then it’s boom on the stock market but if they opt for a loser strategy — which the Europeans have been consistently doing — then markets will slide.
Wall Street is tentatively positive and that’s why the Dow was only down 2.65 points to 13,073.01 and the S&P 500 was off 0.67 points to end at 1385.3. Poor decisions this week will mean all the talk has not been followed up by actions and it will press sell buttons.
Europe remains the main game with the Euro group meeting, and combined with the European Central Bank (ECB), actions are expected. Two possibilities are high on the wish list for market bulls:
- The ECB buys Spanish and Italian government bonds, which will lower these countries' borrowing costs or bond yields.
- The eurozone's temporary rescue fund, the European Financial Stability Facility, buys bonds.
I reckon anything less than these two options will disappoint markets. That said, the Europeans have recently ended a program to recapitalize EU banks and this has not been on the media’s radar. Michael Knox of RBS Morgans thinks this could easily underpin market strength going forward.
Meanwhile the Poms should cut rates but this is a sideshow to what the Fed comes up with on Wednesday US-time. Once again if Ben Bernanke doesn’t impress the market with something like QE3 or a promise that interest rates might not change until 2015, then there could be a sell-off of shares.
Also, things could get worse if the jobs numbers are weak — under 100,000 — at the end of the week.
It’s an exciting week for anyone in stocks but the only unfortunate aspect of the whole show is that the Europeans have been such disappointments in the past and so it’s hard to remain positive.
On good news overnight, it was great to see the S&P 500 not fall below 1375 — that’s an important testing level. The French, German and UK markets were up around 1.2 per cent and so Europe is positive. Earnings news remains positive but revenues are not rising and so costs are being cut which is not great for the jobs’ outlook.
On the debit side, manufacturing in Texas dropped to worst level in a year and this along with other weak manufacturing data puts pressure on the Fed to come up with something positive this week.
From my point of view, I’m hoping the Shanghai Composite starts heading up. This market index is important for our indexes and it looks like a potential fly in the ointment for our stock market as we’re starting to track this barometer of Chinese investor confidence.
This is a huge week where boom or bust is on the table. I think the Europeans have to deliver and the words indicate it, but I simply don’t trust them.
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, July 31, 2012
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