European stock markets believe!
by Peter Switzer
European stocks shot higher overnight in anticipation of good news on Thursday from the European Central Bank (ECB) and mining stocks fared well on the expectation that China will press the button on more stimulation for its economy following some more data pointing to slowing manufacturing.
This tells me the prospect for higher stock prices this year is very likely but don’t expect any good news from the Reserve Bank today, however, given economic data out yesterday, there is a need and a likelihood that we will see another rate cut before Christmas.
US markets were closed overnight for Labor Day. Britain’s FTSE was up 0.82 per cent, the CAC 40 in France put on 1.19 per cent while the German DAX went up 0.63 per cent.
Another stimulus to stocks was the new expectation that the ECB will cut interest rates as well as lay out a plan to keep borrowing costs down for debt-laden European governments. Thursday is going to be a massive day for markets and the ECB boss, Mario Draghi will be the main man.
Given what I’m seeing, stocks such as BHP Billiton and Rio Tinto look oversold and could be a nice play at current prices for longer-term investors.
Looking at yesterday’s data, it does point to a need for a future rate cut. Have a look at these:
- Retail trade was down 0.8 per cent with department store sales off 10 per cent, which was the worst in seven years!
- Company profits were down 0.7 per cent in the June quarter and that’s now three quarters in a row!
- Job ads from ANZ were off 2.3 per cent in August and these have been falling for five months!
- Manufacturing actually rose but the sector is still in contraction mode but at least is happening at a slower rate!
- Home prices for capital cities are going sideways but are still down around two per cent for the year.
- Inflation in the TD Securities’ gauge was up a big 0.6 per cent but when you take volatile items out it was only 0.2 per cent.
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Published on: Tuesday, September 04, 2012
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