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Huge week for shares

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by Peter Switzer

This will be a HUGE week with the Europeans set to outline the rescue plan for the PIIGS countries and local interest rate worriers to see the latest inflation figure which will, in all likelihood, determine the RBA’s interest rate decision on Cup Day.

If the Europeans come up with a credible plan and the RBA looks set to cut rates because the inflation number on Wednesday turns out to be on the low side, then we could see a significant surge on stocks.

However, there’s a history of market reactions to good news where they buy the rumour and sell the fact, which means the initial response to a positive European plan could be counterintuitive. That said, after reflection I think a good and credible plan would set us up for a big end-of-year rally.

EU Summit

Over the weekend, Wall Street had a solid finish with positive news out of Europe being the big driver. However, the EU Summit’s final communiqué, which we should see today, will be an important market-maker or -breaker, followed up by Wednesday’s meeting where the final points to the plan are expected to be revealed.

Remember, Europe was mainly responsible for the troubles on the stock market this year, though the US Congress has not helped, and if the continent’s politicians can impress global markets then a lot of Nervous Nellies in cash will return to stocks.

Wall Street’s close saw the Dow up 267.01 points, or 2.31 per cent, to 11,808.79 and is now up two per cent for the year. Meanwhile, the S&P 500 was up 1.88 per cent on Friday ending at 1,238.25, which means this broader index is still down 1.54 per cent for the year.

If the Europeans can impress key market players on top of improving economic fundamentals in the US, then my long-predicted good end to the trading calendar year looks on the cards.

On the flipside, if the Europeans disappoint with their decisions then we could see a massive sell-off!

Fortunately on Friday, the EU finance ministers approved eight billion euros for the Greeks and the market liked this sign of unity.

All of this comes as US economic data and corporate earnings readings are better than expected, which are all additional positive signs.

What’s ahead?

And on those subjects, there are a plethora of important economic and corporate profit results out this week.

Locally, we get the all-important inflation data on Wednesday and that will add to speculation about a cut or no cut on Melbourne Cup day on Tuesday next week.

For the sake of the slow part of the Aussie economy and for those with debt stress, I’m hoping for not a TAB dividend on Cup Day, but an RBA dividend!

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.

Watch more from Peter on SWITZER TV.

Published on: Monday, October 24, 2011

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