European optimism spurs on today’s markets

15.18 AEST, Tuesday 22 May 2012

European optimism spurs on today’s markets

By Ben Taylor (Sales Trader, CMC Markets)

A touch of optimism has ventured back into today’s market after the weekend’s G8 meeting and China’s readiness to address a slowing china.

Hope that the weekend’s G8 meeting would revitalise the global economy and prevent a Euro break up have spurred on today’s markets. News that China’s leader Wen will adjust policies to boost China’s slowing economic growth has also helped to ensure today’s gains.

There seems to be sufficient feeling that our markets have been oversold in the short term. The question we need to ask though, is this just a typical relief rally before a protracted drop or do valuations support equities at these levels?

I would suspect we will be in a Euro-news void until the Greek elections on 17 June. It would not surprise me to see our markets continue higher until more information around the election is evident.

Greece going back to the polls will delay the inevitable cry from its people to move towards growth strategies over austerity. The ECB and the European commission are working hard on contingency plans for a Greek exit as Germany calls the election a referendum on whether or not to stay in the Euro.

I believe keeping Greece in the Eurozone would be potentially more damaging than letting it leave. The issue has been playing out for years and at some stage you need to cut your losses and protect the rest. With Greece gone a new remaining Eurozone fiscal policy and pro-growth strategy can be formed to protect the integrity of the Eurozone.

The next week has every aspect of a bull trap where traders are sucked back into a pending disaster. The trap will see our Australian dollar trade higher along with commodity prices in the short term.

Caution should be taken with Australian banks which are currently on a cautious footing as worries in Europe increase the cost of funding. While Australian banks have no direct exposures to Greece, our banks are heavily reliant on overseas funds.
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