Business News

Stocks to surge

| More

by Peter Switzer

Three issues were vital to the stock market last week — the European Central Bank (ECB), the Federal Reserve and the jobs report. The ECB disappointed with an unconvincing plan, the Fed kept optimism about QE3 alive — just — but the jobs report delivered and you can expect stocks to surge on the local market today.

On Wall Street stocks boomed with the Dow up 217.29 points or 1.69 per cent to 13,096.17 while the S&P 500 put on 25.99 points or 1.9 per cent to 1390.99 and these were three-month highs.

Economic data impresses

Back to the trigger for the spike in stocks and non-farm payrolls in July rose by 163,000 jobs after a terrible 64,000 result in the month before. Unemployment did go up from 8.2 per cent to 8.3 per cent but it was job creation that got traders excited and the experts were only expecting 100,000 new positions. This was a timely reminder that the American economy is better than the doomsday merchants would have it.

By the way, the fact that the jobless rate did tick higher kept some market players hopeful that this could spur on the arrival of QE3.

In more good economic news, the Institute for Supply Management’s services index for July was 52.6 following a 52.1 figure in June. Any number over 50 means the sector is expanding.

To add to the optimism ECB boss Mario Draghi's has won over more fans following his announcements late last week with some seeing more progress than was first thought.

News this week

The ECB and the EU generally have a lot of pressure on them and if they don’t come up with something impressive soon, this market optimism could be short-lived.

Meanwhile, there's no big news out of the USA this week, though Fed chief, Ben Bernanke speaks early in the week and the market will hang on every word. Meanwhile, China reveals inflation, production, investment and retail data on August 9, which will be closely analysed. Poor numbers could spook the market.

On the local front, it is big news week with the RBA board meeting, but I don’t expect a change in interest rates. There’s the latest housing finance numbers and the unemployment read for July as well as the RBA’s latest monetary policy statement.

Once again we’re heading in the right direction and that’s why stocks will head up today but it remains a work-in-progress until Europe, China and the USA convince the market makers and breakers of the world that the worst is behind us. That is going to take a bit of time but we’re heading in the right direction.

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: Monday, August 06, 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!