Thread: On Sunday evening European sentiment appears to have undergone a significant change from Thursday. Russians, themselves, were never as agitated about the "crisis" as the American media seem to be, there is a sense that constitutional politics has survived and that whatever hardships that may be coming, in the short-term, the worst of the negative structural forces -e.g. currency devaluations and falling commodity prices - is past or about to pass. The fact that the communists in Russia are not entirely pleased with the national recovery plan should be bullish in the West; the communist will not be able to agitate the Russian masses. With the exception of Germany, where the old guard politicians gain some benefit from exaggerating the potential dangers from Russia to enhance their own prospects in the forthcoming elections, Europe is calmly and solidly behind Russia and its economic reforms. The UK and Austria and France are taking leading roles in building a European and American alliance. Indeed, there seems to be a very impressive international determination to help Russia.
The focus might shift to Japan and Latin America. But it is hard to believe that Japan has not been woken up by now. Latin America will be a US responsibility if it shows strain. All of this is likely to build a consensus that the US will lower interest rates and that we may be entering an era of substantilly lower interest in the US. If this happens, the market will be undervalued, and as world economic growth recovers, so will the longer term prospects of the US market.
I would think that the market will begin to recover on Monday, but the technical damage has been so great, that there will be selling into the rallies. The biggest test to the market will be earnings warnings, in the next few weeks, followed by tax loss selling before the end of October.
I would be interested to hear what sentiment is like in the US on Sunday evening.
Victor |
