International Monetary Fund (IMF) Managing Director Christine Lagarde holds a news briefing at the IMF headquarters in Washington, D.C. on July 6, 2011. UPI/Kevin Dietsch |
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If U.S. stock futures were higher Thursday morning, why did the past three days of gains on Wall Street seem so surreal?
Certainly, the past three days have been an exercise in steering too closely over the hood of the car, over-reacting, as it were, to every little voice of optimism that investors can find. There has been no new, solid initiatives from European in the past week, except that leaders have rolled up their sleeves and are working all but non-stop to resolve the Greek debt issue that, in turn, threatens to undermine banks across the continent, especially in France.
The week could be summed up by International Monetary Fund Director Christine Lagarde calling for an urgent response to the debt crisis on one day and German Chancellor Angela Merkel on the following day calling for patience. Investors can filter through the sound bites and take a stab at the prospects they present.
Lagarde, for her part, was criticized for explaining in a recent speech that banks in Europe were suffering from a lack of liquidity. Within days, however, others were admitting she had a point.
"Things are deteriorating. This week and certainly probably since August, it seems like their access to unsecured funding really has tightened up," Joseph Abate, a money market specialist at Barclays Capital told The New York Times.
An economist at Capital Economics in London, Jonathan Loynes, pointed out three years after the collapse of Lehman Brothers that there were "growing concerns that we are going back into a credit crunch."
Nonetheless, stocks have risen for three days in New York, the Dow Jones industrial average adding 140 points on Wednesday. The Standard & Poor's 500 index gained 15 points, while the Nasdaq composite index added 40 points.
After two months of moribund markets, one can't rule out bargain hunting to explain the recent upswing. In Asia Thursday, the Nikkei 225 index added 1.76 percent, while the Shanghai composite index lost 0.23 percent. The Hang Seng index in Hong Kong rose 0.71 percent, while the Sensex in India added 1 percent.
In Australia, the S&P/ASX 200 index gained 1.65 percent.
The rosy numbers seem to ignore the International Energy Agency's recent downgrade of global economic growth for 2011 to close to 4 percent. The Organization of Economic Cooperation and Development also shaved its forecast for growth for 2011. In Greece, where financial fortunes are at the epicenter of Europe's woes, the government said the economy would contract 5.3 percent in 2011, compared to a previous forecast of a 3.5 percent contraction.
In midday trading in Europe Thursday, the FTSE 100 index in Britain added 2 percent, while the DAX 30 in Germany rose 3.59 percent. The CAC 40 in France gained 3.87 percent, while the Stoxx Europe 600 rose 2.24 percent.
