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8/6/2012 1:39 PM
A Resilient Market
By WSS Research Team
By Carlos Guillen
Despite the lack of macroeconomic indicators today, investors are continuing to feel motivated by last week's jobs results and by central banks' commitment to jump in to provide the liquidity necessary to promote growth if need be. With Italian and Spanish yields softening and with China making additional efforts to support growth, today's trading session is turning to be very encouraging. This is being reflected in the Dow Jones Industrial Average as it has continued Friday's up turn, and is currently trading 83 points higher.
News from the People's Bank of China over the weekend has been a motivating factor during today's trading session as the Bank indicated that it would intensify policy fine-tuning, increasing the odds that some monetary easing would be on the way. China's Central Bank pledged to intensify its monetary policy fine-tuning in the second half of this year and improve credit policy to bolster the real economy. According to China's Central Bank, it will look to reinforce fine-tuning and pre-emptive adjustment in monetary policy and improve credit policy to support the development of the real economy. Decreasing demand around the world has greatly affected China's exports, which in turn has decelerated gross domestic product growth 7.6 percent in the April-June period, the slackest pace in more than three years. As such, Chinese officials are moving to put forth monetary policies that spur growth. Beijing has followed a program of policy fine-tuning since the autumn of 2011, cutting interest rates, easing rules on bank lending, fast-tracking investment projects and cutting taxes and bureaucracy for businesses.
Investors are also continuing to feel confident that the debt crisis in the euro zone is stabilizing, and this has helped Spanish and Italian bond yields fall today. In particular, it is good to see that the Spanish 10-year bond yield is all the way down to 6.74 percent, which last month was in the seven and a quarter range, and it has been established by economists that any rate above the seven percent mark is unsustainable for the nation's debt. European markets are also continuing the nice rally experienced this last Friday after European Central Bank President Mario Draghi's continued provided confidence that it would do what it takes to keep the euro zone in one piece. At the moment, it is apparent that the ECB stands ready to provide the liquidity needed to keep the union together.
Despite the encouraging move in equity markets so far in the trading session, we would be more encouraged to see an upward move based on true macroeconomic fundamentals as opposed to shaky jobs data and Central Bank promises that could change at any moment. However, at this stage in the game, we welcome any move to the upside with open arms.
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