Market down, but can I call it a draw?
by Peter Switzer
Considering the bad news around at the moment, I considered Wall Street’s close, which was slightly down as akin to a draw. The NRL saw its first draw last night with the Roosters and the Sharks finishing at 14-all and it reminded me of Fatty Vautin’s take on a draw that “it’s like having to take your sister to the pictures".
The Dow dropped 36.18 points or 0.28 per cent to 12,736.29 while the S&P 500 lost 2.22 points to 1352.46.
Bad news vs. good news
This was not a bad result but you can’t get away from the fact that it was to the downside and not the upside. The fact there is no appetite to sell-off has to be seen as a good thing considering the bad or uncertain news around now.
Let’s look at it:
- With the eurozone ministers meeting in Brussels on Monday and Tuesday, there are reports that little progress is expected. There is no proof of this and in fact my reading of finance minister comments before the meeting looked pretty positive.
- Spanish bonds have spiked again and this implies the EU agreement last month was losing credibility in the eyes of the market.
- US earnings are tipped to be challenged by the weak US economy and the global slowdown thanks to Europe.
- There was the jobs number in the USA last Friday where only 80,000 jobs turned up.
- China’s inflation number of 2.2 per cent made market players worry more about a hard landing than the 'China had beaten the inflation' worry that forced them to tighten monetary policy in the first place!
- The VIX or fear index has nudged up from 17 to 18 but this is of little consequence.
- The US fiscal cliff is worrying some market players. President Barack Obama wants the Bush tax cuts to remain for the middle class but anyone on $250,000 or more will lose the tax breaks.
- A Federal Reserve governor has called for QE3 to create jobs in America, even if it means higher inflation.
- The European Central Bank boss, Mario Draghi, has said he will cut rates again if it’s needed.
- Consumer credit surged by $17.12 billion in May — this was the biggest jump in five months. Economists surveyed by Reuters had expected an expansion of $8.5 billion and revolving credit had its best read since November 2007!
- Alcoa reported better than expected.
Bad to uncertain news is outnumbering good news and that’s why we’re getting market outcomes like we saw on Wall Street overnight. Some doomsday merchants think central banks are out of firepower compared to 2008 but they make the mistake of thinking that the concerns of 2012 are as bad as 2008 — that’s ridiculous!
That said, we still need the EU and the USA to come up with some gifted leadership, which is a big ask given recent history. On China, those guys seldom let capitalism and the West down!
Today on the local front, we get to see the latest NAB business confidence survey and that should be interesting given the arrival of the carbon tax hot on the heels of recent interest rate cuts.
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Published on: Tuesday, July 10, 2012
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