No news is good news
by Peter Switzer
The Yanks had no news to trade off so Wall Street went nowhere, and I reckon no news is good news. Though we have to keep an eye on Europe, and Spain in particular.
European stocks dropped and it is the question mark over what Spain might or might not do in relation to a bailout request that is bothering investors on the Continent. But of course there is profit-taking going on in Europe after two really good months for share prices.
While the Dow was up 11.54 points to 13,564.64, the S&P 500 was virtually flat at 1,459.32 but in Europe the CAC 40 in France lost 1.15 per cent while the German DAX gave up 0.76 per cent.
The concern over there is that Spain has not asked for a bailout which means the European Central Bank (ECB) can’t help them by buying its bonds and this in turn will drive down its borrowing costs.
Why won’t they do this? Well, help comes with ‘strings’ – fiscally tough demands – which the average Spaniard won’t like and so there is a political pygmy problem where the PM of Spain is finding it hard to face the brutal truth.
The Spaniards will have to give in or cop a bond market bashing. It comes down to the choice of two evils, but until that choice is made stock markets could be a bit edgy.
Back to the US, and typically there is debate over whether QE3 will work to stimulate the US economy and whether it will cause inflation. Well, I believe it will work because this time the banks are in better shape, Europe is heading in the right direction and all we need is China to step up its stimulation and we will see a global growth bounce back in early 2013. This should underpin further rises in the stock market.
The Chicago Fed President Charles Evans agrees with my scenario and I reckon I am in good company.
Against this, Fed Ex reported a negative outlook but this was constructed on the view of the global economy before the actions of the ECB and the Fed. If these monetary stimulations work then forecasts made now could end up looking too negative.
That’s the bet going forward and you can see how I am punting.
Locally, I hope the RBA is wise enough to cut rates one or hopefully two more times to bring down the Oz dollar to help the slow lane of the economy where most of the companies on the Aussie stock exchange reside.
In simple terms, our portfolios or nest eggs are in the hands of central banks from Sydney to New York to Frankfurt to Beijing, and also the behaviour of the likes of the Spanish leadership.
But for now, no news is good news.
Published on: Wednesday, September 19, 2012
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