Business News

Magical turnaround in sentiment

| More

by Peter Switzer

Like magic, market sentiment has turned around with Wall Street and European stock markets up nicely in total contrast to the fear and loathing yesterday. So, what gives?

Well, two of the flies in the ointment — Spain and China — came out with decisions that impressed the investing community who determine the course of share prices.

Let’s go to the scoreboard with the Dow up 72.46 points or 0.54 per cent to 13,485.97 while the S&P 500 was up 13.83 points or 0.96 per cent to 1447.15.

Over in Europe the German DAX put on 0.19 per cent while the French CAC 40 was up 0.72 per cent.

That was then, this is now

The rises on Wall Street were even more impressive as a guide to investor attitude as the Yanks shrugged off economic data that could have hurt stock markets last year.

Kicking off the bad economic news was GDP, which came in at a weak 1.3 per cent growth rate and explains why the Fed went with a third round of quantitative easing (QE3) now. And to add insult to injury, durable goods orders slumped and pending home sales fell as well but it was because of a lack of stock to sell, which is a good sign for house prices.

This will feed into consumer confidence and is a turnaround sign but the USA needs a whole lot more, and again, that’s why they got QE3.

Against the bad news, jobless claims dropped to the best level in three months.

The only bright spot in today's slew of economic data was the weekly jobless claims figure. Claims for unemployment benefits fell to the lowest level since July, according to the Labor Department, while the four-week moving average for new claims snapped five straight weeks of increases.

Good news from China

In the good news department, the Shanghai Composite spiked in late trade when reports predicted a big Chinese government stimulation program and this coincided with China’s central bank making a massive injection of money into the economy last week. CNBC says it was the biggest in history at US$57.9 billion.

Meanwhile, Spain outlined its budget plan for 2013 where spending cuts were favoured over tax increases and the markets liked what it read about it. There were 43 new laws proposed to change the economy and a plan to bolster liquidity.

Working against this good news are revelations due out tomorrow on the capital position of Spanish banks. The news could help or hinder markets.

All of this aside, the Chinese news should help local stocks today.

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: Friday, September 28, 2012

The Switzer Super Report is a newsletter and website for self managed super funds. With exclusive commentary from Peter Switzer and Paul Rickard the Switzer Super Report will help you maximise your after tax investment returns and grow your DIY Super. Click here for a free trial or subscribe today.

Why Aussie stocks lag Wall Street

Kill QE, kill rally? Nope!

Dow to reach 20,000 – can you believe it?

It’s not All Too Hard, it’s More Joyous!

Abbott deserves a Tony Award for that speech!