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Positive signs on the European front

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by Peter Switzer

The good news is outweighing the bad news out of Europe and that’s why Wall Street ended in positive territory overnight. As I said on Monday — this is a huge week — and so far, so good.

However, our European buddies have poor form on the board but I suspect they are heading in the right direction and so does the market.

‘Shock and awe’ needed

The Dow was up 52.3 points, or 0.43 per cent, to 12,150.13 while the S&P 500 ended up 1.39 points, or 0.11 per cent, to finish at 1258.47 and is getting near resistance levels around 1275. It is going to need a real ‘shock and awe’ event like last week’s combined central bank action to give technical traders the guts to punch higher.

I think it can happen with the European Central Bank set to cut interest rates later this week and if this can be followed up by some positive resolutions from the EU summit in Brussels at week’s end, then we could see this rally go up a level.

Adding to my cautiously optimistic story, the VIX or fear index is now out of the 30s and is under 28, which says investors are starting to look at stocks more favourably.

Two funds better than one?

Helping positivity was talk of the old European Financial Stability Facility — the bailout fund with 400 billion euros in it — being sustained when the European Stability Mechanism (ESM) kicks off in the middle of next year.

Could two funds be better than one? Expert EU watchers say yes.

At this stage, it is all speculation but the real deal comes at the end of the week. If the EU pow wow comes up with credible budget reduction strategies for the 27 member countries, but particularly the 17 in the eurozone, then we could easily rally strongly into Christmas.

Let’s hope our best Christmas gift comes early at the end of this week. I know I might regret this optimism but I reckon the kick in the pants that the Germans got when their bond auction did not go well a few weeks back has spurred the key people in this European mess to get serious about cleaning up their act.

I don’t like long shots and so I hope I’m on the money sticking my neck out.

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: Wednesday, December 07, 2011

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