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by Peter Switzer

Hope springs eternal with EU finance ministers meeting overnight and it coincides with US confidence spiking higher. Meanwhile Wall Street and investors are hanging onto the hope that the Europeans can come up with something to justify the measured optimism that we’re seeing right now and which compares to last week’s negativity.

In simple terms, we’re in a trading range which sees the S&P 500 having difficulties around the 1200-level and locally we are sticky around the 4000-or-so level.

If the Europeans come up with a surprise play, the market takes off but if they play their usually disappointing game we’re heading to the cellar!

Showing the willingness to cautiously back the Europeans, Wall Street closed higher. The Dow rose 32.62 points, or 0.28 per cent, to 11,555.63 and the S&P 500 was up 2.64 points, or 0.22 per cent, to 1195.19.

The goal

Don’t be confused – the Italian problem with its 1.9 trillion euro worth of debt could sink the euro itself and that’s why I believe eventually we will see a positive play.

"Our priority is to have the whole of the eurozone to be placed on a stronger treaty basis," said Angela Merkel, the German Chancellor. "This is what we have devoted all of our efforts to; this is what I'm concentrating on in all of the talks with my counterparts."

The goal is to get some responsible budgetary agreement from the 17 countries and then the ECB might act to help the debtor countries pay back their debt. It might have to be done with the IMF’s help but both bodies need commitment from the eurozone countries that they will get their act together.

Over in the US, American Airlines filed for bankruptcy protection but the big news was the jump in consumer confidence going from a reading of 40.9 in October to 56 in November!

Europe is the main game

But as I have been arguing, Europe is the main game and I agree with the view of Credit Suisse Economist Yiagos Alexopoulos.

“The deterioration in liquidity and pricing in euro area government bond markets means an aggressive policy response is urgently needed,” Alexopoulos wrote in a research note. (CNBC)

Like many local economists, he insists that the ECB has to go for quantitative easing or the eurozone will be finished.

He says this could be seen as a monetary policy action to avert a depression that brings excessive deflation.

Clearly the market hopes for a plan that has credibility and the fact it is not selling off means it is giving the EU officials the benefit of the doubt but the question is how long can this tolerance last?

Finally, if the EU comes up with something that looks like it will fly, stocks will soar! Let’s not even consider the opposite.

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, November 30, 2011

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