Investment Commentary From Brinker’s Joe Preisser 6-11-12

As investors across the globe continued to grapple with the uncertainty on the European continent, the prospect of additional, accommodative monetary policies being enacted by several of the world’s major Central Banks sent share prices higher across indices this week.  In Europe, on Wednesday, stocks rallied to their best single day performance in more than seven months following a meeting of the European Central Bank(ECB).  Although the rate setting committee elected to maintain the current level, the President of the ECB, Mario Draghi signaled that measures designed to stimulate the euro-zone’s economy would be forthcoming if growth were to falter.  According to Bloomberg News, “Global stocks rallied the most this year, the euro strengthened and commodities jumped on speculation policy makers will take steps to revive the slowing economy.” Mr. Draghi’s sentiments were echoed on this side of the proverbial ‘pond’ by Federal Reserve Chairman Ben Bernanke in an appearance before a Congressional budget committee in which he reiterated that the Central Bank, “remains prepared to take action as needed to protect the U.S. financial system and economy” (New York Times).

Stocks rose across continent’s in the wake of an unexpected decision by the Central Bank of China on Thursday, to cut interest rates for the first time since 2008, in an attempt to stimulate growth in what has been a slowing economy.  According to the New York Times, “China cut its benchmark lending rate Thursday, for the first time in nearly four years, adding to efforts to reverse a sharp economic downturn.” The nation’s policy makers are once again demonstrating their continued resolve to act in an effort to thwart the negative effects of Europe’s sovereign debt crisis, which have rippled through the global economy. Dariusz Kowalczyk, an economist at Credit Agricole was quoted by the New York Times as saying, “The biggest impact of the move is likely to be on sentiment, both among businesses and consumers domestically by showing Beijing is bringing out the big guns to support growth…investors know that they have more ammunition if need be and a good track record in using it.”

Through the confusion the nations of the European Union face as a result of the precarious state of affairs in the nation of Greece, where the rapidly approaching national elections to be held on June 17th will serve as a referendum on the country’s membership in the euro zone, the Continent’s leaders have drawn closer to an accord on a rescue package for embattled Spanish financial institutions.  In an effort to halt the flight of capital still rattling the country and mitigate the dangers facing what is the fourth largest economy in Europe, the possibility that emergency funding could be made available to the banks themselves has come to the fore.   Throughout the current crisis Spain has strongly resisted attempts by its European partners to encourage the country to accept a rescue package, as the disbursement of these funds in the past has come laden with broad conditionality that has meant the need for additional austerity.  The most recent proposals, to lend directly to the troubled institutions themselves, have been designed with terms limited to the financial sector in an effort to make them more palatable to the government, thus displaying the resolve of Europe’s leaders to combat the current crisis and offering hope for a successful resolution.

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