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There’s nothing like leaving things till the last minute and the European Central Bank’s (ECB) three-year offering to European banks was no exception. Markets have been waiting for this latest stimulus to boost bank liquidity to assist the recovery from the financial slump blanketing much of Europe. The stimulus was well received and could cement our earlier view that the last months of 2011 will be seen as a turning point. Already we are beginning to see global markets embark on a new trading range, with current levels comfortably above October lows.
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Note: U.S. markets are approaching a 50-200 day moving average cross, which is an extremely bullish and timely sign.
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The ASX 200 continues to lag behind its US and UK counterparts, although the downward trend has been broken and is likely to produce a similar ‘golden cross’ formation.
Economists predicted approximately 293 billion euros in new loans would be taken by troubled banks but the uptake was considerably more encouraging with 489 billion in loans being drawn.
For the global economy, this is positive. Put simply, liquidity allows banks to do business. If the major banks have the ability to lend, then consumers and businesses can borrow and hopefully kick a little life back into the economy. All at record low rates. Similar to the American stimulus packages QE1 and QE2, the large liquidity injection is like a shot of adrenaline to an energy-sapped environment.
Many argue that this quantitative style of easing is a mere band-aid on a much larger issue, but there are few alternatives. A slow, painful recovery is more appealing than a sudden death for major economies, which would have a far greater reach than people imagine. Allowing whole European nations to go bankrupt is not an option. The ECB has stepped in as expected and while it won’t be a straight-forward recovery, it is likely that a bottom has formed and long-trading opportunities will present themselves.
Hopes are still high for a late-December rally and Santa may yet deliver. Some say the Mayans believed the world would end in 2012 but it may just be the beginning. Well-funded, proven earnings remain key. We need to remember that Australian economic exposure to Europe is far outweighed by exposure to a developing Asia, making Australia one of the countries best positioned for recovery.
Enjoy your Christmas and fasten your seatbelts, 2012 is set to be a wild ride…
Stay ahead of the game,
Lachlan McPherson
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