Business News

Waiting for EU wisdom

| More

by Peter Switzer

Investor hopes that help was on the way for struggling stock markets was frustrated when a German official gave such an idea the thumbs down. In the US, however, market players bought stocks on the belief that the Fed will do something out of its current meeting to keep liquidity flowing.

The Dow was up 95.51 points or 0.75 per cent to 12,837.33 while the S&P 500 put on 13.2 points to end up 0.98 per cent at 1357.98. And what is interesting is that the VIX or fear index is now down to 18, which shows over the week concerns have been subsiding for share buyers.

Germany and the Federal Reserve

On the German story, the G20 meeting brought conclusions that Angela Merkel could be ready to look at some eurozone bond issuance to help Spain rid itself of bond yields over a ruinous seven per cent.

However, a big fat “nein” has come from a well-placed German official. Mark my words, if something isn’t done based on wisdom then a market crisis will make these determined Germans change their minds.

Meanwhile, the Fed in the USA is meeting and the market expects signs of a slowing job market will mean the central bank will extend Operation Twist where short-term bonds are sold and money is used to buy long-term bonds, which drives down the yields or interest rates on these bonds. Lower interest rates encourage more economic activity and so it’s monetary stimulation.

As expected, there might not be a big reaction to it happening tomorrow but who knows with this crazy market dominated by short-term traders.

From the good news department, while housing starts dropped 4.8 per cent in May, building permits were at the best level in three years.

The main game

But this is all a sideshow to the main game, which is now Spain. Until Europe and these frustrating Germans do something about it, markets will remain depressed and consumers, along with business, will have confidence problems that will affect economic growth and this will not help stock prices.

The greatest disappointment of the G20 meeting was the EU’s attitude to the world’s too respectful hope that they will actually move decisively to fix up its bond yield problem for Spain and Italy. The Europeans are in denial and might need a scary market kick in the pants before they act and that is regrettable.

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: Wednesday, June 20, 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.

What is it with ‘Greeks’ and cash?

Who’s afraid of QE3?

Ignore stupid recession headlines

So what happens this week?

Suddenly, Wall Street went positive – what just happened?