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Seeking Alpha

Wednesday, September 12, 2012

Europe is Finally Supported

supporting column
Germany’s constitutional court ruled in favor of Germany’s participation in the permanent euro-zone bailout plan and fiscal accord for budget discipline. The European Stability Mechanism (ESM) thus ratified by the court, means Germany’s Chancellor and its President, its Parliament and Court are in accord behind the whole of Europe. Thus, finally, Europe seems to have its supports in place, the sort in which markets can believe in. This has European shares higher today and is also driving our own stocks higher as a result. The SPDR S&P 500 ETF (NYSE: SPY) gapped open higher on the news.

Europe analyst
It also appears, at least at this point, that Germany will not stand in the way of the European Central Bank’s (ECB) plans to buy bonds of distressed euro area nations. Some even speculate that the ESM will join in that effort. I believe the ECB was able to gain German favor by promising to sterilize its money supply efforts, and thus keep longer term inflation concerns at bay. Interests inside Germany rightly demanded that any increases in the ESM face new approval from Parliament before the German president can sign off on such capital releases.

Stocks in Europe are celebrating today as a result:
European Indexes
European Index ETFs
EURO STOXX 50: +0.6%
iShares Europe (NYSE: IEV): +0.4%
Germany’s DAX: +0.7%
iShares Germany (NYSE: EWG): +1.0%
France’s CAC 40: +0.5%
iShares France (NYSE: EWQ): +0.7%
FTSE 100: +0.1%
iShares U.K. (NYSE: EWU): +0.3%
IBEX 35: +1.0%
iShares Spain (NYSE: EWP): +1.9%
FTSE MIB: +1.2%
iShares Italy (NYSE: EWI): +1.3%
Athens ASE: +5.3%
Global X FTSE Greece (NYSE: GREK): +6.0%

Finally, Europe seems to have solid supports in place to ease pressure on troubled area bonds. This may mark the end of the crisis phase for Europe, but not the conclusion of economic contraction. That said, stocks can now contemplate recovery, and so trading should trend higher, save for when economic data reaches the wire. The euro should likewise mark near-term bottom here, but I expect another factor will threaten Europe shortly, which I will detail in a near-term article. Stay tuned…

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