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Europe is the main game

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by Peter Switzer

This will be an important week after a good one last week with the news flow pointing to the positive, especially in Europe. But can it last?

Wall Street actually put in five days in a row on the upside with the S&P 500 index up more than five per cent for the week after closing out Friday 6.9 points, or 0.58 per cent, higher to 1216.01. Meanwhile the Dow was up 4.7 per cent for the week to 11,509.09.

Politics in Europe is the main game in determining the level of the stock market. I reckon there has been overselling but I’ll be wrong if Europe doesn’t come up with a credible solution and fast. Without this, stocks will fall again.

The support act is where the US economy is heading, and less commentators expect a US recession, but this was a bigger concern at the beginning of August. The latest Thomson Reuters/University of Michigan consumer sentiment index was better than expected at 57.8 but the readings on consumer outlook were still negative, though these can turn on a dime, as the Yanks might say.

One concern for me was the European reaction to the advice of US Treasury Secretary, Tim Geithner. There seemed to be an attitude of 'the Yanks caused all of this, so why should we take notice of him', but this misses the point that the Americans have been better at dealing with their problems than the Europeans.

The stock market is the scoreboard on how this game is going and we’re losing right now and the Europeans are the weakest link in the team. If they don’t get that, then we’ll be in trouble for some time.

In the US we should hear about ‘Operation Twist’ from the Fed where $600 billion worth of longer-term bonds will be bought to lower long-term interest rates.

This week the IMF meets in Washington and Europe will be the main game. Also the BRICS (Brazil, Russia, India, China, and South Africa) will meet on what they can do for Europe.

In addition, we will hear how President Barack Obama plans to fund his jobs plan, which could excite or de-vibe the stock market.

Economics-wise there’s housing data in the US but the leading indicators figures will be the ones I most want to see.

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, September 19, 2011

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