Thursday, June 17, 2010

More evidence of Spain stabilizing

Markets have been rallying this week. I wrote an article on Sunday, stating that stock markets were “poised to move higher this week” as a result of the situation in Spain stabilizing. So far, that prediction has been correct. This week, the TSX has risen 0.42 points on Monday, 240.20 points on Tuesday, 13.51 points on Wednesday and 24.92 points today.

In addition, on Tuesday, the S&P 500 closed at 1115.23 points to break above its 200-day moving average, which is a bullish indicator. 

These positive movements have been caused by a stabilizing situation in Spain. In fact, some investors are beginning to realize that the situation there is turning out better than they expected. In particular, markets have been encouraged by successful bond sales. For example, Spain today successfully raised €3.5-billion from the sale of treasury bonds.

As for Spain's 45 regional savings banks, there has not been a bankruptcy in recent weeks. Last week, Caja Madrid merged with 5 smaller savings banks, then announced a merger with Bancaja to become Spain's largest savings bank. The Spainish government has ordered its savings banks to merge, in order for healthier banks to absorb weaker ones. So far, this strategy has been working.

If the situation in Spain continues to stabilize, a risk-asset rally that will move commodities and stocks higher can be expected to continue in the coming weeks. However, a factor that can potentially hinder this rally is the economic situation in the U.S. Economic data from the U.S. continues to be worse than expectations, with today's data showing that initial claims for jobless benefits rose last week by 12,000 to 472,000.

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