European markets are trading higher this morning picking up the positive momentum from Wall Street. Investors are still very much stimulated by the Janet Yellen’s press conference and the dovish tone by the Fed is helping to push the markets higher. The US weekly jobless data released yesterday was encouraging and this has pushed the Dow Jones index up by nearly 400 points, a level which was not experienced in nearly three years.
Despite all this, traders should not undermine the fact the Fed could be raising the rates early next year which will officially mark the end of cheap money. There is no doubt that the U.S. economy is standing on a strong base, however it will be naive to consider that it is immune to external shocks which can easily shake its base. If we look at the eurozone, growth is the major problem and there is very little hope that the ECB’s full blown QE is the only answer to resolve the issue. The political grid in the eurozone is extremely stubborn and politicians are not addressing the root cause of the problem- structural reform and without this, hopes are very limited. The manufacturing sector in the UK has also become a victim of the sluggish growth in the eurozone and the economy may grow less next year as compared to this year, due to this problem. Japan and China are muddling with pathetic growth and the outlook is not so great for next year.
So, my concern is, if the eurozone, the UK, China, Japan, Russia are all struggling with growth, is it really wise to buy the stocks in the US blindly. Surely not, because, it is only a matter of time that we could see a massive sell off in the US market if the issues are not addressed on the other side of the equation.
In terms of economic calendar, we have very little on the docket. The German GFK consumer climate data is due this morning and a strong reading could push the European markets further higher.
Disclosure & Disclaimer: The above is for informational purposes only and NOT to be construed as specific trading advice. responsibility for trade decisions is solely with the reader.
by Naeem Aslam