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Europe still the troubled child

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by Peter Switzer

Wall Street’s Friday close summed up neatly, albeit worryingly, what we will have to endure in the early part of 2012. It’s EU anxiety versus a bigger and better USA and unfortunately bad news travels faster, as well as more effectively, than good news!

As the Yanks headed towards the weekend, US unemployment fell from 8.6 per cent to 8.5 per cent but the worse-than-expected government bond auctions in Europe, Fitch rating Hungary’s debt to junk bond status and ongoing euro concerns keep rattling investors’ confidence.

In fact, one of the best measures of an economy’s support — its currency — has been showing that 2012 starts with continued question marks over Europe. On Friday, the euro hit a 16-month low and that tells me we have some European nuisance news ahead for stock players over the next few months.

Tuesday’s market action out of Europe and Wall Street should be influenced by yet another meeting between German Chancellor Angela Merkel and French President Nicolas Sarkozy in Berlin on Monday. The subject is how to impose fiscal discipline on EU members.

Outlook for the year

Despite this, US stock markets are up since the beginning of January with the Dow up 1.17 per cent to 12,359.92, the Nasdaq up 2.65 per cent to 2674.22 and the S&P 500 some 1.61 per cent higher to 1277.81. Meanwhile our S&P/ASX 200 is up only a lousy seven points since 3 January. I suspect this year our market will make up some lost ground on Wall Street but the strength of the currency and China could determine how positive our results are.

The week ahead

On the good side of what we saw last week, the Yanks expected 150,000 new jobs and got 200,000 and the VIX or fear index did go below 21, which is another positive sign for stocks.

I think it’s safe to assume that USA news won’t be spooking markets this week but there are few announcements out of Europe and eyes are also on Iran and its impact on oil prices.

And earnings season starts in the USA as well and these will be another test for stock prices.

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, January 09, 2012

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