FORECASTSTOCKS:
The European debt contagion has been “kicked down the road” as Spanish and Italian short-and-long term bond yields have moderated recently given the ECB “plan” to buy bonds of up to 3-years in maturity...but only if asked; and only if conditionality is imposed upon those asking. The Fed has also changed its game from “inflation-fighting” to “unemployment fighting”; and with any war — they will go further and farther than anyone believes in printing money to achieve their ends. This will support all asset prices ultimately.
STRATEGY: The S&P 500 remains above the 160-wma long-term support level at 1238. The much followed 200-dma support level stands at 1372, and remains the bulls “Maginot Line.” We’ve noted this is perhaps one of the “weirdest rallies” we’ve ever been witness to, and it causes us a great deal of consternation. But the new Fed policydirectly targets stocks; expect a near S&P all-time high test at 1515-to-1530.
ASIAN BOURSES ARE STRONG; EUROPEAN BOURSES ARE “MIXED” as China’s GDP figure came in a bit higher than anyone expected at 7.4%. There were some calling for a fall below the much-vaunted 7.0% level that would have given further rise to a Chinese “melt-down”; but that didn’t happen. Do we have enormous faith in the Chinese numbers? No, not really, but then again they are the only numbers we’ll get to see and those are the ones that we must formulate our trading strategy upon. For now, it’s bullish – and the Shanghai Index is higher by +1.2%. We’ll take, for we are long the China ETF (FXI).
In Europe, there is a bit of squabbling this morning between Germany’s Merkel and France’s Hollande before the EU Summit regarding central EU veto over national budgets. Ms. Merkel is in the “yes” column; Mr. Hollande is in the “no.” column. This is as it should be; Ms. Merkel is the bastion of EU austerity, where Mr. Hollande is bastion of higher taxes and increased spending. Thus, the debate between fiscal and banking union will dominate today and into the upcoming Summit…and for the moment the markets don’t like it.
However, there are rumors that this weekend shall be the weekend where Spain shall finally go hat in hand to the “troika” to finally ask for a bailout. This has supported the markets generally in the past several sessions; but about all we can say is that “it is about time”, and “we’ll believe it when we see it.” If Spanish PM Ranjoy has shown us anything about managing a crisis – it is that he does not understand the economics of it; but does understand the politics. We’ll see which one serves the Spanish electorate better.
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