European markets are trading higher as the concept of bad news is good news is back in town with vengeance. Yesterday, there was no doubt that the German IFO business climate numbers were extremely depressing, but yet the equity markets continued their move towards the upside and this was mainly on the back of the optimism which Mr Draghi pumped into the nerves of the traders by leaving the doors open for a full blown quantitative easing program. A word which traders love the most, and under such circumstances, they want to carry on buying the equity market, as long as the central bank is behind them. This is very much like Déjà Vue for traders, just on the different side of the Atlantic.
Some would argue that US equities are more attractive for traders and this why the S&P 500 passed the level of 2000 for the first time in the history. Well, it's unclear if that entirely true or not, but it is certainly true that if any one who has bought the recent dip, they must be reaping the award for their work. However, I believe that on many metrics there is a lot more value in the European equities for investors as compared to the US equities. For instance, purely from a valuation perspective, the European markets by far are not stretched as much as compared to the US equities. Most importantly, the central bank in Europe is completely behind the curve and there is a strong possibility that they will launch a quantitative easing program, whereas in the US, the Fed is in the process of winding that down. There was a famous saying, don’t fight the Fed. I would say the phrase has changed now, which is do not fight the ECB!
The latest CPI figure for the EU, which is due this week, could increase the pressure on the ECB, as the forecast is for a lower number of 0.3% as compared to the August reading of 0.4%. Back in the US, the durable goods data is due later this afternoon, which could be influenced by the Farnborough air show orders. The forecast is for 7.1% for the month of July which is a lot higher as compared to the June’s reading of 1.7%. However, if you take away the orders of air show from the data, the actual reading could show a downward slide.
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.