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Doomsday merchants could be wrong

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by Peter Switzer

What could really knock the Doomsday merchants off their raven-like perch? Three things — Europe continues to move in the right direction, easing up on excessive austerity, the Yanks avoid the fiscal cliff and China confounds critics and grows.

Well, Europe is a work in progress and so is the fiscal cliff threat, while the negative types have been cheering China’s recent weak economic indicators. They have been self-congratulatory, sporting a self-satisfied look of “I told you so”.

However, over the weekend China gave out a nice data read that could see the optimists put a bottle of champers on ice!

No, it’s not cork popping time, but it’s time to think about celebrations — I will be waiting another two months before I engage in such things but I will be buying my favourite stocks on any significant dips.

And they could be just around the corner, if the chartists are right.

On Wall Street

Interestingly, while Wall Street had its worst week since early June, with both the Dow and the S&P 500 off over two per cent, our S&P/ASX 200 index was only down about eight points. And over the past two weeks we are up 2.3 per cent.

In case you missed it, the Dow was up 2.46 points to 13,328.85 while the S&P 500 was down 4.25 points or 0.3 per cent to 1428.59 and the chartists are wary of the 1420-level, so if this is breached this week, there could be a significant drop in stock prices.

Right now, the Yanks are caught between reporting season, where JPMorgan reported better than experts tipped, and fears about the global economy. However, they did receive some more good news with consumer sentiment in October hitting the best level in five years!

There are some questions on growth for these companies because revenues are not as strong as analysts would like and so they are cutting costs. Also, outlook statements aren’t exciting investors. Still, I think the good news is doing well against the bad news considering the Fed thought the economy needed QE3, which has been nicknamed ‘QE Forever’.

European concerns

The big worry over Europe is Spain’s Prime Minister Mariano Rajoy who keeps saying “no bailout”, but he might be leaving out the word “yet”. Spain watchers say he could be waiting to get regional elections out of the way before accepting the inevitable.

On the USA and the fiscal cliff, we can only hope that good sense prevails in the US Congress after the election and that the next president will have a Congress that will work with him. This, therefore, remains as a break on the stock market until it is out of the way and it’s why I think we will see stocks go up and down without conviction until the ‘cliff’ issue is sorted.

We will also need to see Spain ask for its bailout and then the focus goes to China.

And on this front I feel inclined to use a Bart Simpson line and say: “In your face, China doubters!”

Good news from China

China's exports spiked in September at nearly double the experts’ guesses while the import reading was consistent with the tiger of Asia back on the strong economic growth path.

Exports were up 9.9 per cent against a forecast of five per cent and miles better than the 2.7 per cent rise which showed up in August.

"The export data is much stronger than expected, signaling that overseas markets have recovered," Xiao Bo, economist at Huarong Securities in Beijing told Reuters.

Last year, exports gave 31 per cent to China’s GDP growth and so export-watching is critical to understanding the health of the economy.

What’s ahead?

Meanwhile in the USA, reporting season will mix in with a swag of important economic data, which could test the 1420-level or send it higher, but I suspect a testing lies ahead.

Locally, there are some important economic reads such as housing finance and new car sales, but it will be the Reserve Bank’s minutes from its last interest rate decision that will be closely analysed.

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.

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Published on: Monday, October 15, 2012