It’s becoming increasingly clear that the euro and European stock prices will be lucky to maintain their current levels. Both are being attacked by market forces in three areas: from Europe’s own backyard, from the US, and from China.
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While stock prices in London have jumped 8% from its low on June 1 and the euro currency has risen 4% against the dollar since its low on July 24, trading volumes were thin, as usual, over the holiday. Business activity in Europe is slowing substantially.
Retail sales also fell along with an increase in unemployment and falling confidence readings. The only thing that seems to be propping up stock prices and the euro currency is the hope that the European Central Bank (ECB) will indeed approve the bond-buying program it has been promising.
If those hopes get dashed by rhetoric from the September 6 meeting that simply reiterates that the ECB is putting things in place to buy bonds, things could turn quickly.
Fears that China’s economy will not land softly are increasing and that is becoming a weight on markets across the globe. Manufacturing in the US has softened three months in a row.
So it becomes a matter of whether the markets have sufficiently factored in these adverse scenarios or whether they are still vulnerable to disappointment. Either way, there does not seem to be sufficient support
for the rise in stock prices or in the value of the euro.