Eurotrash at it again
by Peter Switzer
Europe set the scene for a Wall Street sell-off with concerns over who might win the French election spooking market players. Meanwhile on the local front, we get the latest inflation read today and economists will be poring over the data to work out if the Reserve Bank will cut the cash rate next Tuesday.
Look, we’re going to see Europe trash the stock market for a large part of this year, however, I still agree with BlackRock’s Bob Doll that stock prices can grind higher over 2012. The more dramatic days will be linked to Eurotrash such as Marine Le Pen and other radical Europeans who will want to reject austerity and responsibility for short-term, opportunistic gain.
The French election certainly worried a few Europeans with the German DAX down 3.36 per cent and the French CAC 40 off 2.83 per cent. Making matters worse was the resignation of the Dutch cabinet after they failed to agree on austerity measures to lower the country’s national debt.
Regular readers know I think we have to see a pullback of stocks after a big start to the year but it doesn’t have to be a 10 per cent correction or anything like that. As the S&P 500 went through a key resistance level overnight in finishing 11.59 points, or 0.84 per cent, to end at 1366.94, the next stop is 1350.
Meanwhile, the Dow lost 102.09 points, or 0.78 per cent, to close at 12,927.17.
I think the buying opportunity I have been waiting for is now starting to emerge but the trick is to pick the bottom. I’m in a mood to wait for a while but trying to time a market is fraught with danger and it has been made harder by the fact that our market has started to under-react to movement overseas.
Bell Potter’s Charlie Aitken thinks the falling Aussie dollar has made our stocks more attractive to foreign buyers and so if the inflation data points to a rate cut ahead then the dollar could sink some more which will help our market.
The biggest cause for concern was the first round of the French elections where President Nicolas Sarkozy came in second to Socialist leader Francois Hollande. This has never happened before that a president loses the first round in the 54-year history of the French voting system!
Even more worrying, the National Front candidate Marine Le Pen polled 18 per cent of the vote and she is anti-EU, anti-euro and anti-Islam.
Adding to negativity was a bad reading on German manufacturing which surprised many economists.
Waiting for inflation news
Let’s hope this bad news from Europe will be offset locally by good news on the inflation front, which will be good news on the interest rate front and in turn this will be really good news for local stocks.
Could this be an overdue good news week? If not, due to European concerns, then the good news is there might be a buying opportunity for those of us who like to buy good companies when stock prices dip.
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Published on: Tuesday, April 24, 2012
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