Europe remains positive
by Peter Switzer
But in reality what Europe does is pretty important for market sentiment in the aftermath of the EU summit. The fact, that the Continent’s stock markets are still climbing makes you think that the latest plan has a lot more credibility than previous ones.
Of course, I am only speculating as we don’t know the exact details and we don’t know individual countries’ reactions — this will play out over the next few months — but all we can say now is “so far, so good.”
Overnight in the US a good factory orders report saw the Dow rise 72.43 points or 0.56 per cent to 12,943.82 and the S&P 500 put on 8.51 points or 0.62 per cent to 1374.02.
Over in Europe, shares finished on a two-month high and this was driven by high expectations that policymakers will get it right.
The FTSE was up 0.83 per cent, the French CAC 40 put on 0.96 per cent and the German DAX was 1.26 per cent higher, which I think is pretty significant. Remember the back down on austerity by the German Chancellor Angela Merkel had been a sticking point in EU discussions and so a positive reaction on the German stock market is a good omen.
Good news for banks
But even more important out of the EU summit was the good news for banks.
"The fact that the banks could be recapitalised directly has given the markets the direction they were looking for," said Securequity sales trader Jawaid Afsar to Thomsen Reuters.
"But I suspect that the upside from here is limited to another 100 points. We have to be careful, there are still fundamental problems out there and we would look to take a quick exit on any signs of weakness," he added.
There’s also a hope that the European Central Bank could cut interest rates again this week and that could provide another boost to stocks. However, the Bank could decide to keep it up its sleeve in case something goes wrong in the negotiations of the fine details of the plan.
Positive news needed
At the moment we’re still in the post-euphoric stage following the summit, but soon the doubting stage will test financial markets and that’s why I hope we can get a run of positive news flow to create a base of confidence that will drive stock prices higher in Europe.
This will be needed to offset some bad economic news in the USA, for example on jobs, but I don’t think this will last for long provided Europe can keep producing better headlines.
It’s a work-in-progress story with a bunch of politicians who haven’t got a great track record. Keep your fingers crossed!
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Published on: Wednesday, July 04, 2012
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