What announcement would prompt a severe market shock?

11th January 2012

At present, it's a waiting game to see what event will trigger the next tempest. Investors are currently awaiting the outcome of another round of talks on the debt crisis. This time, it's between German chancellor Angela Merkel and International Monetary Fund chief Christine Lagarde. Meanwhile, France's AAA rating was declared safe unless there are 'important shocks', reports the Guardian, which buoyed markets.

But given the euro soap opera kicked off in 2012 with yet another meeting between Merkel and Sarkozy, many are sceptical that the market will react unless something dramatic occurs such a sudden default from a member state. Given the many ‘Merkozy initiatives', ‘the markets have learned to ignore their pronouncements', say commenters.

Ray_Fletcher comments on Mindful Money economist blogger Shaun Richards blog: "Shaun, an excellent if gloomy analysis. I fail to understand why there has been little reaction from the other 15 members of the EZ to the "Merkozy initiatives". Are they merely happy to sit in silence and wait until the bottom falls out of the duo's plans and then state they were always against their designs? Talk is cheap and we are getting a lot from these two…"

ExpatInBG adds: "Don't worry too much about Merzoky dictating to the Eurozone. It is all just hot air. The markets have learned to ignore their pronouncements – so why should the rest of the eurozone get upset about talk of plans that will never fly?"

What dents market performance?

Behind last year's market turmoil lay the Eurozone crisis, poor economic data and indecision from governments around the world, which made for a potent mix that provoked stock market shocks.

A lack of positive action among the politicians of both Europe and the US damaged investor confidence and wiped hundreds of billions of pounds off the value of global stock markets. But some experts see value in Europe, despite a lack of decisive action. 

Paul Casson, manager of the Henderon Horizon Pan European Alpha fund, says: "We have to pay attention to any announcements on the Eurozone, of course, but the paradox is we have no faith in its leaders – but need them to do something. But since last July they have continued to make matters worths – it's almost a tragedy. However, given a choice between cheap equities and certainty, I'll take cheap equities – and European equities are cheap at present. At some stage we'll have certainty."

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