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Optimism again! Will the EU kill it?

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by Peter Switzer

Two good days on Wall Street which should help the local stock market today but now we wait for the EU summit to see what help or hindrance the leaders of this troubled debt land can do to global stock prices.

Rumours have been positive for a change with suggestions of a big cut in interest rates in Europe lifting investor spirits and the Spanish stock market index — the IBEX 35 — up 2.12 per cent! But as we all have been taught over the past four years, what traders give, traders can take away, though it’s nice to dream of the EU leaders actually coming up with something that could convince the overall market that it’s now time to buy stocks.

This time, I suspect, is a way off yet.

US markets gain

Positive rumours and some more good housing data in the USA helped Wall Street with the Dow up 92.34 points or 0.74 per cent to 12,627.01 while the S&P 500 index was up 11.86 points or 0.9 per cent to 1331.85.

So, what can take away this short-term niceness on markets? One word and it’s — Germany. The Germans won’t play ball with the idea of a Eurobond, which marries their national balance sheet to those of the rest of Europe. This would give solidity to the PIIGS countries but it would weaken the German’s.

Right now, it looks like a relationship where the Germans are sorry that they have hooked with a bunch of spendthrifts, though it seemed like a good idea until the GFC as they sell 60 per cent of their GDP to their big spending European buddies.

Summit test

The test of the summit will be what happens to the yields the likes of Spain and Italy are paying. If decisions are made to bring these down, then we could be in for a nice rally. If it’s more the same piecemeal changes, then we stay in this market malaise we are now in.

Helping US stocks overnight was a nice rise in durable goods orders — up 1.1 per cent in May. Economists expected a 0.4 per cent increase. Also pending home sales were up 5.9 per cent to a two-year high in May.

So optimism is in the hands of Europe again — will they kill it over the next two days? Hope not but if history is our guide, you’d have to say yes!

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.

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Published on: Thursday, June 28, 2012

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