Tags: Stock | Market | Rally | hope

Few Experts Expect 'Hopes and Prayers' Stock-Market Rally to Last

Thursday, 07 Jun 2012 10:39 AM

By Michael Kling

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The recent stock-market rebound is unsustainable, analysts told CNBC.com.

“I think what we are seeing at the moment," Olivier Desbarres, head of Foreign Exchange at Barclays in Singapore, told CNBC.com, "is a market that is trading on hopes and prayers — hope that policymakers in the eurozone, in the U.S. and in China will come up with a set of measures that ring-fence some of the liquidity and solvency problems that we have."

But there is little good economic or political news, Desbarres says. The European Central Bank probably won't do anything new to help Europe, and investors shouldn't expect the U.S. Federal Reserve to take any actions soon.

Editor's Note: Google Banned This Video But You Can Watch it Here

Some analysts expect central banks to extend its liquidity operations or engage in more monetary easing, but even they think it won't help much over the long run anyway.

"If the macro picture stays weak, expect any QE3 rally to last hours or days, not weeks or months," Gerard Minack of Morgan Stanley told CNBC.com

Markets rebounded because the ECB hinted at rate cuts and the Fed hinted at taking more action, but that rally won't last, says Stephen Halmarick of Colonial First State Global Asset Management, according to CNBC.com.

Some experts say investors should buy gold because gold prices will increase as markets engage in a flight to quality and the metal becomes viewed as an alternative currency.

Burkhard Varnholt of Sarasin Bank predicts that gold will reach $2,000 an ounce because of Asian central banks diversifying out of the euro and investors are concerned about "fiscal recklessness," according to CNBC.com

However, China's central bank cut its interest rates, the first time it has cut rates since 2008, Bloomberg reported. China hopes to avoid an economic slowdown prompted by the eurozone debt crisis.

Its move could mean the Chinese economy is weaker than the government thought, according to Bloomberg.

"This will be the beginning of a rate-cut cycle and there will be at least one more reduction this year,” Shen Jianguang, a Hong Kong-based economist, told Bloomberg. “The data to be released over the weekend must be very weak and inflation must have eased sharply.”

Editor's Note: Google Banned This Video But You Can Watch it Here



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