A mix week for global stock markets with those in the East ended the week in red while West ended the week with a gain as global stock markets stayed focus on the EU in their fight to the debt crisis.
Firstly, on 8th Dec, ECB cut interest rate by another 25 basis point to 1%, extending its financing to banks from the current 1 year to 3 years and eased rules on the collateral it requires from banks to tap its funds. Those measures will provide liquidity to banks to prevent credit crunch. However, on the day itself, a turn of events on top of those good news was ECB President deny it will ramp up bond buying program to fight the debt crisis ( note aggressively and not totally will not do any bond buying ) and that comment sent global stock markets down.
Secondly, the outcome of the EU Summit on 9th Dec was as followed :-
1. EU leaders except UK agreed to sign an intergovernmental treaty that would require them to enforce stricter fiscal and financial discipline in their future budgets. Of the 27 EU nations, UK was the isolated ( UK is not in the 17 Euro nations ), the rest of the 26, 17 of which is the Euro nations together with 6 others who have the intention to join Euro agreed to the new treaty. While the remaining have to consult on their respective parliament on that. The detail of the treaty will be out by March 2012.
2. EU leaders agreed to provide an additional 200 billion euro to IMF to help to increase a "firewall" of money to European bailout funds to help cover for Italy and Spain.
3. A permanent 500 billion euro European Stability Mechanism would be put into effect a year early, by July 2012, and for a year, would run alongside the existing and temporary 440 billion euro EFSF, thus also increasing funds for the firewall.
4. EU leaders also agreed that private investors would not automatically face losses should there be another bailout in the future as compared to the 50% haircut they took in the recent Greece bailout.
The outcome from the EU Summit without any doubt will not solve the 2 years long debt crisis overnight but nevertheless it is another positive step towards resolving it. While the amount of bailout funds have more or less settle and as investors awaiting for the detail of the new treaty in March 2012, ECB will be on stand-by to continue bonds buying should it is required to calm the markets before the next measures/plans are drawn out in another step to resolve the crisis. As whole, there was no negative news from the EU Summit or too good a news either. The debt crisis is far from over and will take times to resolve. Debt ridden Euro nations will have to continue to do their part in austerity measures to reduce the deficit and Ireland is one of the example that austerity measures worked. The leaders of Greece, Spain, Italy or Portugal will have to work hard to convince their respective citizens that austerity measures is the way to get their country out of the debt crisis.
US economic data continue to indicate economy still improving but a slower pace and employment situation appears to the improving but not totally out of the wood as they still need a job bill to bring down the stubbornly high unemployment rate and that should be the focus for 2012 which also a Presidential election year. Another issue in focus will be the long-term debt reduction plan which was out off lately due to differences between the 2 political parities over whether should the rich be tax more. Other than that, nothing much has changed in the US.
China does have some good news coming out lately. Despite slowing down in its economic growth with PMI in contraction since the 2008 crisis, China Government has cut the bank reserve requirement ratio by 50 basis points to ease monetary policy and November inflation has slowed down to 4.2% which clearly indicating that there will be lot of rooms for the China Government to ease monetary measures. China Government could further cut the bank reserve requirement ratio by another 150 to 200 basis points, cutting interest rate and rolling out stimulus package to spur economic growth. In a blue print from China this year, China will be shifting their export activity to consumer consumption as a main component of the economy growth and that would be a better method than current one as current economy growth was hurt by the Europe debt crisis.
Singapore Government gave some surprise this week when they announced new property curbing measures to tame the inflated property markets and that news sent property stocks tumbled as much as 10% within 2 days. The new measure will hurt property developers revenue perhaps for the next 12 months but from a long term view that move is a positive one. As global economy slowing down and possible need stimulus package it is possible there will be a situation whereby we will have excessive liquidity floating around ( like in the case of 2009 ), such a measure is timing to prevent property prices to get inflated some more and getting out of control should there be excessive liquidity flowing in. Singapore economy is projected to grow at between 1% - 3% for 2012 and should Europe debt crisis get worse or some bad news from US economy, Singapore economy could even drop to recession which requires Singapore Government to roll out stimulus. The property curbing measures is probably a foundation work to tame inflation should stimulus program is being rolled out either locally or other countries.
As a whole, there isn't any bad news for the time being despite the volatility of the stock markets still persist as investors still cautious of the EU debt crisis. From the longer term, EU debt crisis will get it solve one day and global leaders know the catastrophic effect on the EU debt crisis should it being not contained. EU leaders will do all they can to resolve it and just matter of time. Short-term investors might have problem finding gain in equity market given that most expect 2012 will be a slow growth year but for long-term investors, the weakness in stock markets could be a bargain opportunity. Do also note that fundamentally sound companies presently are in a better position than they were in 2008 to ride out any crisis as they have a much more healthier balance sheet than then. That is important as the falling in stock prices due to nervous moment in reacting to negative news/events will present a cheap and attractive valuation to buy on.
