Trust in Europe wavering
by Peter Switzer
Oops, we might have got ahead of ourselves! That seems to be the stock market reaction overnight in Europe and the USA with only small retreats in most of the key indexes, considering how much they have run up in the past few days. However, we’re now in the put up or shut up phase and if the European Central Bank (ECB) boss doesn’t back up his words with credible bond buying actions, then stocks will slump.
Over in the USA, the Federal Reserve doesn’t have to do QE3, thought it would make the market happy, but it has to say something that will offset the slowing economy which undoubtedly will bring a bad jobs number on Friday.
The next few days will either make or break global stock markets, so hold on to your hip pocket.
Wall Street overnight
Ahead of the Fed’s decision out tomorrow, the Dow lost 64.33 points or 0.49 per cent to finish at 13,008.68 while the S&P 500 index dropped 5.98 points or 0.43 per cent to end above the support-level of 1375 at 1379.32. This says traders don’t want to doubt the market, the ECB and the Fed but they do have their fingers on the sell buttons if disappointment follows the central banks’ decisions.
Of course, you can’t rule out the markets even selling off on good news, as history shows that this can happen — “buy the rumour, sell the fact” has been the old market war cry — but this time I doubt whether genuinely good news from Europe would be treated negatively.
The good news
On the bright side, the USA had some better economic data which included:
- Consumer confidence in July went from 62.7 to 65.9 since June.
- The Chicago PMI rose from 52.9 to 53.7 in June, and it’s good to see recent contractions for industry demand has turned around.
- The S&P/Case-Shiller home price index for 20 cities was up 0.9 per cent against expectations of a 0.5 per cent rise.
- Personal income was up 0.5 per cent against an expectation of a 0.2 per cent jump.
This improving economic story alongside better than expected company earnings news does a lot to create a solid base for a further rally in stocks but the ECB and the Fed can’t stuff it up over the next few days.
Those Europeans worry me.
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Published on: Wednesday, August 01, 2012
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