Business News

Euro yes, minus Great Britain

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by Peter Switzer

For anyone not sure about a deal such as the one hatched by the EU over the weekend, the one litmus test you can’t ignore is Wall Street’s reaction. And so the 186-point gain must say a lot but the question has to be, what would it have been if Great Britain wasn’t the one man out?

While the Dow went up 1.55 per cent to end at 12,184.26, the S&P 500 added 20.84 points or 1.69 per cent to finish at 1255.19.

For the year, the Dow is up 5.24 per cent but the S&P 500 is still down — off 0.19 per cent and it remains to be seen if Santa Claus will ride into New York on a nice rally. It does look highly likely with the fear index or VIX down to 26.5. A few weeks back it was close to 40!

In a nutshell, 26 out of 27 EU countries agreed to tougher budgetary obligations but the UK said no and Prime Minister David Cameron threw in for good measure that the Poms would never accept the euro.

So we got a second rate solution but at least the troubled PIIGS countries with the debt problems did sign up for responsibility and that at least helps rule out the very worst case scenarios. That said, there are still a lot of big issues to sort out around the debt.

Matters weren’t helped by Moody’s downgrading three French banks but these downgrades have become less newsworthy — thank God!

One thing that could help sustain the rally is the latest consumer sentiment reading from Thomson Reuters and the University of Michigan, which shot up to 67.7. This was two-points higher than expected.

This week in the States there will be some key manufacturing and wider economic data, which will either add to or detract from the improving US economic outlook.

These readings, on top of relief following the EU deal, could set us up for a solid week for optimists.

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, December 12, 2011

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