Markets: The Surge Goes On

So where will markets head now after the post Christmas rebound continued last week, defying the gloomy forecasts from the World Bank and other gloomy prognosticators?

Higher, despite the continuing worries about the eurozone, specifically Greece?

We will get another dose of gloom from the International Monetary Fund tomorrow night which will slash its forecasts for growth this year and next.

London's Telegraph newspaper reported at the weekend that the IMF will cut its global GDP growth forecast from 4% last September to 3.3%, with big cuts made in European growth forecasts.

The Fund predicts the US will grow at an unchanged rate of 1.8%, and China will lead out with an 8.2% annual rate, down from 9%.

In contrast the World Bank had an unchanged forecast for China of 8.4% for this year. Both are good news for Australia.

But despite these and other pessimistic forecasts, the start of 2012 has been a lot sunnier for markets than anyone had forecast.

For example, America's Standard & Poor's 500 Index has risen 20% from its low of last October.

It keeps climbing on a mixed bag of fourth-quarter earnings, improving US economic data, and improving credit conditions in Europe.

It now stands at its highest level since early last August after last week's 2% gain.

The Australian market is up more than 4% so far this month and five and six month highs have been reported for markets in Asia and in Europe.

The AMP's chief strategist Dr Shane Oliver said at the weekend investors should be on the lookout for a pull back in markets.

"After strong gains so far this year shares are getting a bit overbought and vulnerable to a correction," he wrote.

"What's more Europe is likely to remain a source of volatility.

"However, the broader picture for shares is looking more favourable: valuations are attractive particularly against very low bond yields (and) the risk of a meltdown in Europe has receded."

As well, he said "The global recovery looks like it will continue (albeit at a slower pace than seen in 2010 and 2011), monetary conditions are easing and there is lots of cash on the sidelines".

The Dow ended Friday up 96.50 points, or 0.8%, at 12,720.48, for a gain of 2.4%, its highest close since July 21.

The S&P 500 closed up 0.9 point, or 0.1%, at 1,315.38 -- its highest close since July 26.

The Nasdaq Composite Index fell 1.63 point, or 0.1%, to 2,786.70 and rose 2.8% last week as solid reports from IBM and Microsoft outweighed a poor earnings report from Google.

The Australian market however will trade weakly today because of a small loss on the futures contract overnight Friday.

The SPI futures index eased 6 points to 4217 at the close early Saturday, our time.

That was after the local market finished higher on Friday and for the week.

The ASX200 index rose 24.8 points, or 0.6% to close at 4239.6, while the All Ords added 24.4 points, or 0.6% to close at 4303.

That was a gain of 1% and 4.5% respectively for January so far.

The local market is now around the level seen five weeks ago.

The Australian dollar struggled to extend gains on Friday but remained near three-month peaks on the greenback, closing at $US1.0484 in New York early Saturday, a new 11 week high.

In Asia Hong Kong's Hang Seng Index rose 0.9% to 20,111.84, ending above the 20,000-point level for the first time since November 9, while Japan's Nikkei Stock Average added 1.5% to 8,766.36.

China's Shanghai added 1% to 2,319.12, and South Korea's Kospi gained 1.8% to 1,949.89.

The MSCI Asia Pacific Index rose 3.3% last week.

Tokyo's Nikkei jumped 3.1%, South Korea's Kospi Index rose 4%, China's Shanghai Composite Index surged 3.3%, while Hong Kong's Hang Seng Index jumped 4.7%.

Most European stocks edged lower Friday, snapping a four-session run of gains, as investors lost patience with Greek debt negotiations.

The Stoxx 600 closed 0.3% lower at 255.85, ending with a weekly gain of 2.7%.

It's up 4.5% for the year so far, a solid start compared to previous years, but for how long remains the question.

London's FTSE 100 fell 0.2% to 5,728.55 and the French CAC 40 index was down 0.2% at 3,321.50.

For the week, the London market was up 1.6%, Paris' CAC 40 rose 3.9%, Germany's Dax jumped 4.3% and Italy's market was up 3.9% as borrowing costs for it and Spain fell again.

Talks continued in Athens on a new deal for Greece's private debt, with of 50% to 60% in the amount of debt and new, lowered interest rates.

Greece and its private creditors appeared to be close to a deal to give bond holders coupon interest of 3.5% for shorter maturities and up to 4.6% on longer-dated bonds. The average rate would be around 4%.

The Wall Street Journal reported at the weekend that the talks may not wrap up before a eurozone finance minister meeting tonight, our time, when a second tranche of cash to keep Greece from defaulting is on the table.

But officials with the IMF and Germany have been pushing for a lower rate out of concern that Greece's debt won't return to sustainable levels if the average coupon on the new bonds comes to about 4%.

Before Greece can receive the new money, it needs to cement a deal with private debt holders.