“Buy on the rumour sell on the news” is a tried and tested market trading approach, traders often make trading decisions based on what they calculate may happen due to any given economic report or event (the rumour). Once the event passes or the report is released (the news), they then ‘dump’ their positions and the market moves. The markets and traders have currently ‘bought the rumour’ of financial stability due to the platitudes mouthed by the IMF, ECB and G20. Once the full plan is announced and that plan is put into action will the markets then ‘enjoy’ another secular bear market rally similar to that of 2009-2010, will we also collectively ‘buy’ the solution?
It’s quite a revelation to learn that the rumour of the creation/injection of up to €2-3trillion of liquidity, in order to protect the solvency of sovereign states and banks, has created mass market optimism. The debasing of the globe’s second reserve currency will cause money flight into equities and commodities and an inevitable rise in those two sectors, not because the fundamentals are good, but because they represent the least worst option. Perhaps a form of zero equilibrium will be reached if the USA Fed then conducts a similar exercise.
USA treasury secretary Tim Geithner is talking tough now back on ‘safe’ territory; “They heard from everybody around the world in Washington meetings last week. Europe’s crisis is starting to hurt growth everywhere, in countries as far away as China, Brazil and India, Korea. And they heard the same message from us they heard from everybody else, which is it’s time to move.” However, once the Euroland problem is fixed (temporarily or otherwise) focus will once again shift to the deep problems the USA domestic economy is still mired in, the united states of America’s problems are equal to (if not greater) than that of the united states of Europe.
Chris Weston, an institutional trader at IG Markets in Melbourne; “traders are suddenly becoming increasingly confident that European leaders can now reach an agreement to successfully contain the debt crisis. Investors must hold their nerve and at the same time central banks and finance ministers need to remain ‘on message’ as any suggestions that the rescue plans may go away will likely be enough to see markets take fright once again.”
In overnight/early morning trading Asian markets reacted positively to the steps apparently announced by European finance leaders, the Nikkei closed up 2.82%, the Hang Seng closed up 4.15% and the CSI closed up 1.03%. The ASX closed up 3.64% and Thailand’s main bourse index closed up 4.38%. The UK FTSE is currently up 2.0%, the STOXX is up 2.83%, the DAX is up 2.87%, the CAC up 1.75% and the Italian index is up 2.54% but still down circa 29.78%. The SPX daily index future is currently up circa 1%. Brent crude is up $195 a barrel and gold and silver have clawed back recent losses, gold up 46 and silver a spectacular 20.8% per ounce. The euro is flat versus the dollar, sterling, yen and the Swiss franc. Sterling is up versus the dollar and Swiss franc. The Aussie dollar has made strong gains versus the US dollar.
Data publications that could affect market sentiment on or after the New York opening include;
14:00 US – S&P/Case-Shiller Home Price Indices July.
15:00 US – Consumer Confidence Sept.
15:00 US – Richmond Fed Manufacturing Index Sept.
Case Shiller house price sale prices anticipate 4.5% year on year fall. The USA consumer confidence survey is expected to make a slight improvement up to 46 from 44.5. The Richmond Fed manufacturing is expected to reveal a fall from -10 to -12.