Correction or U-Turn on the Market? |
In morning trading in Europe today, stock indices bounced back from a two-year low after the G-20 countries pledged to provide a “firm and coordinated” answer to the problems facing the world economy. American futures garnered support while Asian stocks fell.
Adidas AG (ADS) went up 2.9% after its main competitor Nike Inc surpassed its predicted annual sales and reported that the company’s profit exceeded estimates. The Rio Tinto Group nevertheless took a fall among commodity producers after bronze prices dropped.
The Stoxx Europe 600 Index increased by 0.6% to 216.2 as of 9:20AM in London, although just yesterday it was down 4.6%. Futures on the Standard & Poor’s 500 Index increased 1% and the MSCI Asia Pacific Index fell 1%.
Despite the rebound, DT Trading analysts are anticipating the markets to drop further as long as the threat of rolling back into an economic recession exists on both sides of the Atlantic. The correction that began at the end of the week probably won’t last long and may signify that a lot of capital is being pulled in to open short positions in the world economy.
There are also other opinions circulating that are focusing on the extreme attractiveness of assets at their current levels. These opinions are likely being voiced to afford investors the opportunity to close long positions on instruments that already had margin calls long ago. Wall Street analyst Dan Morris, an analyst with JP Morgan, in particular shares this opinion, saying “risk assets seem very attractive,” but then cautioning, “we think the risk is very high that this might not work, therefore we are hedging one of our long positions in the outlook.”
Meanwhile in Europe, the European Central Bank may act to eliminate risks to growth as early as next month if the economic data disappoints, said ECB Governing Council member Luc Coene.
According to DT Trading economists, the discussion should be about the GDP growth data on the Euro zone that will be published at the end of this month. If the data really does turn out to be negative, the ECB will likely lower the refinancing rate from its current 1.50% to 1.25% and may do so more than once this year or else launch an asset buy-up program.
When asked whether a reduced interest rate was justified, Coene, who heads the Belgian Central Bank, answered, “the ECB hasn’t ruled things out beforehand.” He added, “if the data in early October shows that things are worse than we anticipated, we will look at the kind of decisions we have to take for that.”
European politicians were under pressure from their colleagues all over the world after failing to contain the region’s sovereign debt which is in turn fueling the crisis threatening to push the world to the brink of another recession.
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