Brooksie’s Daily Stock Market blog -an edge before the open
Wednesday, November 30, 2011 9:11 am EST
DJIA: 11,555.63 S&P 500: 1195.19
Monday’s rally is gaining legs, as finance ministers from the 17 countries using the euro are meeting this week to hash out a framework from which to make decisions prior to a summit meeting of government leaders in Brussels on December 9.
However, two announcements this morning are what is responsible for today’s blowout in stock prices. China’s central bank announced it will require less reserve capital from lenders, reversing an 18-month policy designed to slow inflationary pressures.
Additionally, the Federal Reserve and five other banks, Bank of Canada, Bank of England, Bank of Japan, European Central Bank and Swiss National Bank will reduce interest rates on dollar liquidity swap lines by 50 basis points and extend authorization through Feb. 1, 2013. As reported by Bloomberg.com, the Fed states,” The purpose of these actions is to ease strains in financial market and mitigate the effects of such strains on the supply of credit to households and businesses and so help economic recovery.
Yes, “good news” is trying to gain some traction.
This is an important “confirmation” week for economic indicators. As long as the economic message is bump-along-positive, we should be O.K.. Let me remind you again, economic (and job) recoveries tend to take longer after severe recessions, this time being no exception. What’s more, the current recovery, however slow, is doing so without any help from a vital sector – housing, home building and home price stability.
This sector will turn the corner. For one, housing is basic to the quality of life, people need a place to live. As families grow, the need is for a bigger home, hopefully in a desirable neighborhood with access to good schools.
For another, house prices and mortgage rates are now very attractive. The “buy-low-sell-high” adage applied to investing in stocks applies to a big ticket item like a house, as well. As soon as prospective home buyers see house prices and the prospect for mortgage rates notch up, they can be expected to accelerate buying plans.
That will give the economy a big boost.
Today’s economic reports include the ADP Employment Report at 8:15, Chicago PMI (regional business conditions) at 9:45, and Pending Home Sales Index at 10. Thursday its Jobless Claims at 8:30, the ISM Manufacturing Index and Construction Spending at 10, and Friday the Employment Situation report comes at 8:30.
The day is off to a great start as the ADP Employment report shows a jump of 206,000 jobs far in excess of the 130,000 jobs projected.
CONCLUSION: We are now seeing a global full court press on addressing Europe’s banking and sovereign debt problems in addition to the actions underway by the European Union itself. This bodes well for saving the euro and maybe reducing the adverse impact of a European recession on the U.S..
Obviously, the Europeans MUST follow through with the hard decisions on austerity by troubled members and with a framework that facilitates adequate financial assistance to avert defaults.
Then too, as mentioned recently, the euro-bears will not give up without a fight. This week’s rally came just at the moment they thought they were going to score the BIG one. There will be plenty of negative hype, and some hurried short covering.
Super Committee: While the committee failed, I am keeping this up FYI, since it will continue to get press coverage prior to the “trigger” in January.
Jan. 15, 2012: Date that the “trigger” leading to $1.2 trillion of future spending cuts goes into effect if
the committee’s legislation has not been enacted.
Feb. 2012: Approximate time when first $900 bn of debt ceiling runs out.
Feb./Mar.2012: Deadline for Congress to consider a resolution of disapproval for the second tranche
($1.2 – $1.5 trillion) of debt limit increase.
Fall/Winter 2012: When additional $2.1 – $2.4 trillion of borrowing authority from this law runs out.
Jan.2, 2013: OMB orders sequestrations for defense and non-defense categories of spending necessary
to meet spending cuts required by the “trigger.”
Recent blog headlines:
Nov. 2 DJIA: 11,637, “Risk-Taker’s Buy Shaping Up”
Nov.3 DJIA: 11,836, “Again – It’s All About Europe”
Nov.4 DJIA: 12,044, “Easy Does It ! Traders to Take Some Profits”
Nov. 7 DJIA: 11,983, “SuperCommittee Will Soon Take Center Stage”
Nov. 8 DJIA: 12,068, “Stock Market Hanging Tough – Would Love to Run…. but…”
Nov. 9 DJIA: 12,170 “Italy’s Turn to Crunch Prices, But the SuperCommittee is in the On-Deck Circle”
Nov. 10, DJIA: 11,780, “ OK Greece and Italy – Cut the Crap – Decision Time !”
Nov. 11, DJIA: 11,893, “Potential for an Upside Breakout Looms, Absent New Negatives”
Nov. 14, DJIA: 12,053, “SuperCommittee and Economy Taking Center Stage”
Nov. 15, DJIA: 12,078, “European Outlook Tentative – U.S. Outlook Picking Up”
Nov. 16, DJIA: 12,096, “Europe – Surprise Us for a Change – Get the Job Done !”
Nov. 17, DJIA: 11,905, “Time for European Leaders to Avert Contagion – European Central Bank to the Rescue ?”
Nov. 18, DJIA: 11,770, “Stock Market a Coiling Spring ?”
Nov. 21, DJIA: 11,796, “Occupy Washington”
Nov. 22, DJIA: 11,547, “Uncertainty Rules – But Trader’s Opportunity Looms Wednesday Morning Early”
Nov. 23, DJIA: 11.493, “Darkness Before the Dawn ? Germany Starting to Feel the Heat”
Nov.25, DJIA : 11,257, “Europe, Where Art Thou ?”
Nov. 28, DJIA: 11,231, “Finally ! The European Leaders Act”
Nov. 29, DJIA: 11,563, “Game’s On !”
George Brooks
*Headlines Bloomberg.com
**National Journal
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The writer of Brooksie’s Daily Stock Market blog, George Brooks, is not registered as an investment advisor. Ideas expressed herein are the opinions
of the writer, are for informational purposes, and are not to serve as the sole basis for any investment decision. Readers are expected to assume full
responsibility for conducting their own research pursuant to investment decisions in keeping with their tolerance for risk.
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