Is a global sharemarket rout just days away? Gottliebsen

Global stock markets are sending the world a simple message which is available for all those who care to listen. The biggest question is whether the turmoil will have a marked influence on world business and consumer confidence and therefore the global economy. And if the globe slows, Australia faces a double blow.

The simple message is that markets have grave doubts that the European rescue package will work because there is too much debt to fund. In other words, the mess that Greece, Spain, Italy, Ireland and Portugal are in is too big to be rescued – they will bring down the rescuer.

And forcing these countries into deep recessions as part of the ‘rescue’ will also drag Europe down and make the rescue even harder. Adding power to the doubts is the decision to curb shorting activities, indicating to the market that Europe in concealing deep problems.

Not everyone agrees that the market message is correct and many have great confidence in the European package. But as I have pointed out yesterday the doubts are affecting the interbank lending rate, which edged higher again last night. It was the 11th straight day the rate had been lifted as banks realise that many of their number might be endangered if the market is right.

If that keeps happening then we will see a tightening of bank lending around the world and the looming European recession will affect every part of the globe.

It is this force that initially is depressing commodities. Last night fears of the Korean crisis deepening and involving China, plus, of course, the China slowdown fears, also affected the commodity markets.

If the trends we are seeing in the markets continue for much longer, it is going to affect the global recovery.

The next few weeks will be vital. Last night the Dow index of US shares ploughed through its so called 10,000 resistance level as though it did not exist and at one point the Dow was as low as 9774 – a fall of about 2.8%. But then it began to climb and finally closed above the crucial 10,000 level sending out a great cheer among US traders. It will boost our markets this morning.

But if the Dow falls below 10,000 again – and stays there – it will trigger large selling waves from the charting community who will then post 8,200 as the next resistance point. I get regular emails from chartists including the Futures 618 group warning me we will again test the lows of last year and that we are experiencing a gigantic bear market rally.

Only a small minority of people believe this, but if the Dow stays below 10,000, those that have that bearish view will multiply.

So, in short, if the current stock market trends are not reversed in the next few weeks, the stock markets will indeed begin to affect confidence and trading in the global community. Australia is in the front line.

Of course, as only Australia can, we have shot ourselves in the foot with the mining tax which has triggered a capital strike that will delay over $100 billion worth of new projects. So, if the global markets signal converts to a slowdown, then we face a double blow. That’s why our currency is being hammered and our stock markets are performing so badly.

This article first appeared on Business Spectator.