What a difference a day makes

After stock markets and risk assets in general took a pretty brutal beating last week, today has brought some relief so far. Last weeks general tone was investor nervousness surrounding issues such as the US fiscal cliff, potential tax increases on capital gains and the old favourite of Greece not being able to raise the capital required to facilitate themselves on a day to day basis.

While these worries all still exist and taking into account increasing tensions in the middle-east there is a general sentiment of optimism prevailing, the main catalyst of which is the increasing signs that US leaders are coming together to attempt to reach an agreement in order to avoid falling off the cliff.

It is a little premature of course to suggest that “we are there” and there is still plenty of work to be done, but the change in tone is noticeable and a certain degree of calmness exists across the markets today, whether that actually marks a change in attitude or merely exhaustion from last week remains to be seen. The favourite word of “bi-partisan” behaviour needs to go into full effect here from both parties in order to put a big push on coming to an agreement before year end and allay fears.

Further adding to some optimism was the US home sales data which showed growth on previous month and also LOWE’s a home improvement retail company in the US providing a decent quarterly beat vs expectations, this underlies the argument of a housing led recovery in the US that I have documented here previously.

Europe still in a relatively worse situation and we look on at Euro group meetings surrounding “will they, wont they” in terms of providing further assistance to Greece in order to continue their involvement in the “EU PROJECT” or whether the umbilical cord will be severed. Noticeably quiet is Senor Rajoy from Spain who may be relieved to have the spotlight shone elsewhere for a while after he has relatively successfully bought himself some time by hiding behind the ECB plan to safeguard a rise in government bond yields. Also remarkably Spain has managed to increase its balance of payments by decreasing imports and increasing its exports thereby addressing some of its core competitiveness issues. This is certainly a positive sign but also need to see its unemployment numbers shows indications of improving which are still cripplingly high especially amongst the youth segment.

Attached article goes into more detail and worth a read as like I say so often it is too easy to dwell on the negatives splashed in front of you, sometimes you find a little gem that shows that things can improve albeit there lies a long road ahead.

http://online.wsj.com/article/SB10001424127887323353204578127042517977714.html

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