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This week will be huge

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by Peter Switzer

This is a massive week for markets and the pressure is on the European Central Bank (ECB) to deliver. On Friday, the Federal Reserve boss Ben Bernanke played his part saying just enough at Jackson Hole to keep Americans hopeful that a third round of quantative easing (QE3) will be used if the economy needs it.

The Dow was up 90.3 points or 0.69 per cent to 13,090.84 while the S&P 500 put on 7.10 points or 0.51 per cent to 1406.58. And all three indexes — the Dow, the Nasdaq and the S&P 500 finished in positive territory for August, which does not happen all that often.

For the calendar year the Dow is up 7.15 per cent, while the Aussie S&P/ASX 200 index is up 6.4 per cent! But could all of these great results be ruined this week? It’s up to Mario Draghi, the ECB and the EU leadership. They’re lined up in front of the post — it’s not a hard kick — but they have to plonk it over the posts.

And if they can impress markets with their decision and this can be topped off by better than expected jobs new out of the USA on Friday, then there could be sufficient positivity and enthusiasm to push these markets higher.

All eyes on Europe

On Thursday, Mario Draghi will talk about his plan for buying bonds, lowering the borrowing costs of the likes of Spain and Italy, as well as effectively adding to the money supply in Europe.
Recall markets took off since July 26 when Draghi uttered those unforgettable words “whatever it takes” to save the euro and so the reaction from European markets, then Wall Street and ultimately here on Friday will reflect what Draghi says and how market experts evaluate the planned actions of the ECB.

Even if there was a sell-off on the old maxim of “buy the rumour, sell the fact” the sell-off would be just profit-taking. If the news was as expected, there could be a sell-off but it would create a nice foundation for more good news to take the market higher.

On Wall Street

Better than expected US job numbers could do just that or in two months time improving Chinese economic data or better EU growth figures thanks to Thursday’s decision could all be catalysts to put the bears to sleep and get the bulls running.
News-wise and US consumer sentiment hit a three-month high and factory orders had the best jump in 12 months. However, the Chicago PMI, which gauges buying by manufacturing managers went from 53.7 to 53 — not a worry, really — and the Chinese PMI went from 50.1 to 49.2 in August which shows China needs some help from a stronger Europe, which is China’s best customer.

This will be a huge week, but the focus won’t be on our Reserve Bank’s interest rate decision on Tuesday, which will be “no change”. No, the big one will be the ECB on Thursday and gee, I hope they don’t screw up. If they don’t and the Yanks create more jobs than expected, then it will be great for our shares.

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: Monday, September 03, 2012

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